There are some major changes to taxpayer liabilities for the 2018 – 2019 tax year which it is worth being aware of. Many earners will see their take home pay rise, but savers and landlords will lose out. Homeowners will now be able to leave more to close relatives without paying inheritance tax and Scotland now has a different income tax rate structure to the rest of the UK.
To help you understand the changes, Everfair Tax have summarised the main points for you.
The amount you can earn without paying income tax, known as the personal allowance, has risen from £11,500 to £11,850.
Basic rate tax remains at 20%, with the 40% tax starting at the higher amount of £46,350. This is up from the previous entry point of £45,000. But the additional rate tax of 45% starting point has not changed.
Please be aware that the rates for Scotland differ and for further information on this, please contact us.
The level at which National Insurance payments commence has also increased from £8,164 to £8,424. 12% contributions will be charged on employment income up to £46,350 and it then drops to 2% tax for amounts above this.
From 5th April, pension contributions have increased from 1% and all workers must now pay a minimum of 3% of their salary into a pension, with the employer now obliged to contribute 2% rather than 1% as before. In addition, the lifetime allowance for pension savings, which is the total amount you can hold in pensions without paying tax, is now to increase in line with inflation, rising to £1,030,000 for the 2018-2019 tax year.
The dividend allowance relates to all shares that are held outside of an ISA. The amount you can earn from dividends tax free has now been reduced from £5,000 to £2,000 for 2018-19, but this is in addition to any dividends you may receive direct from an ISA which are tax free.
This area has had a major overhaul and whereas in the past landlords were able to claim 75% of their mortgage interest when calculating their tax bill, this has been reduced to £50% for the 2018 – 2019 tax year, will reduce further to 25% for 2019 – 2020 and will cease to exist in April 2020. The changes may have a knock-on effect as all of the rent received may take an individual into a higher-rate tax bracket and could also result in the loss of personal allowances and child benefit.
Personal Savings Allowance
It is predicted that interest rates could rise in the coming year and therefore, although the personal savings allowance has not been altered, the interest earned from savings may take people above the interest free thresholds. If so, they will have to pay tax accordingly and for basic-rate taxpayers the limit is £1,000, higher rate tax payers £500 and those in the top tax bracket have no allowance at all.
Capital Gains Tax
The tax free limit on Capital Gains has now been increased by £400, rising from £11,300 to £11,700.
Married Persons Allowances
The marriage allowance tax saving has been increased slightly from £230 to £238, with a new addition being that you may now apply for this allowance up to four years after your partners death, should this allowance not have been claimed before.
Where one partner was born before 5th April 1935, the married persons allowance has also increased marginally. Originally the sum provided was between £326 to £844.50 and this has now risen to between £336 and £869.50, depending on your income.
The only ISA to be affected by a change in subscription limits this year is the Junior ISA, where the limit rises to £4,260, up from its past £4,128.
However, previously upon death of an ISA holder the ISA income or capital gains became taxable and this has now changed. If an ISA holder dies on, or after, April 6 2018, the ISA retains the tax-free status until the account is closed, the administration of the estate is finalised, or it is three years after the death, depending on which is the earlier.
The inheritance tax allowance remains the same, but the main residence allowance for 2018 – 2019 is rising from £100,000 to £125,000. However, this only relates to money tied up in your main residence, can only be left to direct descendants and begins to be phased out if the value of the individual’s estate exceeds £2,000,000. This allowance is set to rise further to £150,000 in the 2019-2020 tax year and £175,000 in the following one, making a potential total of £500,000 in allowances against the estate.
For a more comprehensive understanding of how the 2018 – 2019 tax changes may affect you personally, please contact us on 01932 428536 or email firstname.lastname@example.org