A reminder of the tax changes that apply from April 2018

Wednesday, 27 June 2018

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Independent financial advice, Wetherby, Yorkshire

To help you navigate your way through the main changes that could have an impact on your financial situation, we’ve provided a summary of the main 2018/19 tax year changes that have come into force. The good news is that the overall tax burden is little changed for basic-rate taxpayers, but there are a number of areas that have changed that should be taken note of.

Here’s what you need to know about the 2018/19 tax year changes.

Personal Allowance
This is the amount of income you can earn before you have to start paying Income Tax. Everyone is entitled to the same Personal Allowance, regardless of their date of birth.

In the 2017/18 tax year, the Personal Allowance was £11,500, and it rises to £11,850 in the 2018/19 tax year.

However, bear in mind that the Personal Allowance is restricted by £1 for every £2 of an individual’s adjusted net income above £100,000.

A spouse or registered civil partner who isn’t liable to Income Tax above the basic rate may transfer £1,185 of their unused Personal Allowance in the 2018/19 tax year, compared to £1,150 in the 2017/18 tax year to their spouse or registered civil partner, as long as the recipient isn’t liable to Income Tax above the basic rate.

Income Tax
The starting point for paying 20% basic-rate tax is £11,850, while 40% tax will start on earnings above £46,350 (up from £45,000).

The Government has already committed to raising the higher-rate threshold to £50,000 by 2020.

Dividend Allowance
The Dividend Allowance was cut from £5,000 to £2,000 from 5 April 2018. Any dividend income that investors earn above the £2,000 allowance will attract tax at
7.5% for basic-rate taxpayers, while higher rate taxpayers will be taxed at 32.5%, and additional-rate taxpayers at 38.1%.

This may impact on director shareholders of private companies paying themselves in the form of dividends, for example, rather than salary.

Investors with portfolios that produce an income in the form of dividends of more than £2,000 a year, which are held outside ISA or pensions, will also be affected by the reduction in the allowance.

National Insurance Contributions
NICs are now charged at 12% of income on earnings above £8,424 until you are earning more than £46,350, after which the rate drops to 2%.

Pension Lifetime Allowance
The Lifetime Allowance increased from £1 million to £1.03 million in the 2018/19 tax year. This is the maximum total amount you can hold within all your pension savings without having to pay extra tax when you withdraw money from them. If the total value of your pension savings goes over the Lifetime Allowance, any excess will be taxed at a rate of 25% in addition to your marginal rate of Income Tax if drawn as income, or 55% if you take it as a lump sum.

State Pension
There has been a 3% rise for the old basic State Pension and the new flat-rate State Pension. If you’re on the basic State Pension (previously £122.30 per week), this has increased to £125.95. The flat-rate State Pension has increased from £159.55 to £164.35 a week.

Inheritance Tax
The residence nil-rate band (RNRB) has risen from £100,000 to £125,000. The RNRB enables eligible people to pass on a property to direct descendants and potentially save on death duties.

Capital Gains Tax
Capital Gains Tax is charged on profits that are made when certain assets are either transferred or sold. There’s no tax to pay if all gains made in a tax year fall within the annual Capital Gains Tax allowance. For the 2018/19 tax year, this is £11,700 (it was £11,300 for the 2017/18 tax year).

Buy-to-let landlords
If you are a higher rate taxpayer, when your gross rental income is added to your salary, then you will see a cut in the amount of tax relief you can claim on mortgage interest.

LEVELS AND BASES OF, AND RELIEFS FROM, AXATION ARE SUBJECT TO CHANGE, AND THEIR VALUE DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF THE INVESTOR.

Chartered Financial Planners. Regulated by the Financial Conduct Authority (FCA no. 603653).