Personal tax changes to be aware of pre April 2018

This is the first year we won’t be seeing a spring budget, Chancellor Philip Hammond has said that he will simple give a 15 minute speech on March 13. When Mr Hammond announced his plan to move the Budget from March to the autumn and the scrapping of the Autumn statement, he said; “No other major economy makes hundreds of tax changes twice a year, and neither should we.”

Prior to April 6, we have put together a reminder of the following changes that were announced in last year’s Autumn budget:

Income tax – 2018/19

  • Personal allowance – to increase from £11,500 to £11,850
  • Basic rate – 20% on income from £11,850 to £46,350
  • Higher rate – 40% on income between £46,351 and £150,000
  • Additional rate – 45% on income > £150,000
  • Dividends:
    • First £2,000 – 0%
    • Ordinary rate – 7.5%
    • Higher rate – 32.5%
    • Additional rate – 38.1%

Tax free dividends reduced

The tax rate on dividends was increased by 7.5% from 6 April 2016 as a way of collecting tax from owner managed businesses. However, at the same time, a 0% rate was introduced on the first £5,000 of dividend income.

The government has reduced the 0% band from £5,000 to £2,000 from 6 April 2018. This will see basic rate, higher rate and top rate taxpayers tax bills increase by up to £225, £975 and £1,143 respectively, or double this in the case of husband and wife sharing family income.

Property taxation changes

There have been numerous property tax changes in recent years, including increased Stamp Duty Land Tax on purchases of second homes, a higher rate of capital gains tax on residential property disposal and the withdrawal of the 10% wear and tear allowance for furnished lettings.

The most recent and perhaps significant change was the announcements of a withdrawal of higher rate tax relief for interest expense on debts related to dwelling houses, which is being phased in over four years commencing 6 April 2017 with a restriction relating to 25% of the interest expense.

In the year to 5 April 2019, the restriction will be applied to 50% of the interest expense, with the percentage increasing to 75% and 100% in the years to 5 April 2020 and 2021 respectively. This will add further pressure for buy-to-let landlords with significant income from property funded by debt to de-leverage their property portfolios or alternatively (in some cases) face income losses.

For those individuals who receive significant rents, which have previously been largely covered by mortgage interest, not only may they face a higher marginal rate of tax but in some cases will find their entitlement to the personal allowance and child benefit removed.

If you have any questions on how these changes will affect you get in touch or call 0161 249 5040