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Tax and the 2018 Autumn Budget

30/10/2018

What is the budget?

The budget is a yearly announcement made by the Chancellor of the Exchequer to the House of Commons. It outlines the state of the economy, then sets out how the Government plans to raise and spend the nation’s money in the next tax year. This includes details on tax, VAT and duties as well as spending in areas such as healthcare, education and welfare.

What is my income tax rate for the 2019/20 tax year?

In the Chancellor’s budget yesterday, he confirmed the below tax bands and rates for the 2019/2020 tax year. These changes will take effect on the 6 April 2019, which is when the new UK tax year starts.

2019/2020

Taxable Income   Tax Band Tax Rate
Up to £12,500 Personal Allowance           0%
£12,501 - £50,000 Basic Rate 20%
£50,001 - £150,000            Higher Rate 40%
Over £150,000 Additional Rate 45%

 

*These rates only apply if you live in England, Wales or Northern Ireland. The devolved Scottish Government sets its own income tax rates.

Your Personal Allowance decreases by £1 for every £2 your adjusted net income is above £100,000. This means your allowance is reduced to zero if your income is £125,000 or above.

How does this compare to the 2018/19 tax year?

The below shows the current tax bands and rates:

2018/2019

Taxable Income Tax Band Tax Rate           Change?
Up to £11,850 Personal Allowance           0% Upper threshold increased by £650
£11,851 - £46,350 Basic Rate 20% Upper threshold increased by £3,650
£46,351 - £150,000         Higher Rate 40% No change
Over £150,000 Additional Rate 45% No change

 

*These rates only apply if you live in England, Wales or Northern Ireland. The devolved Scottish Government sets its own income tax rates.

When tax bands are increased upwards in size or rates reduced this means you can earn more at a lower or tax free rate and is generally good news for individuals. Conversely, when bands are reduced so they take effect at a lower level of income or rates are increased, you will find yourself paying more tax.

Are there any other income tax allowances available?

Starting Rate – The starting rate band applies to savings income but is restricted by non-savings taxable income and will be unavailable if this income is above your personal allowance. Prior to 6 April 2015 the rate payable within the band was 10%, however, it has since been reduced to 0%. The band has covered savings income up to £5,000 since 2015 and this continues to be the case for the 2019/2020 tax year.

This means that if you earn less than the personal allowance you can earn an additional £5,000 in savings income and incur no tax.

Personal Savings Allowance – The Personal Savings Allowance was introduced for the 2016/2017 tax year, coinciding with savings being paid gross. It allows basic rate taxpayers to earn £1,000 tax free and higher rate tax payers to earn £500. It does not apply to additional rate tax payers. There have been no changes to this allowance as part of the budget.

This means that if you earn £50,000 or less you can earn an additional £1,000 in savings income and if you earn between £50,001 and £150,000 you can earn an additional £500 in savings income tax free. If you earn over £150,000 you are not eligible for this allowance.

Above this you will pay your rate of income tax, as detailed previously. Discretionary Trusts are not eligible for this allowance and pay tax on income at the Trust rate of 45%.

Dividend Allowance – From April 2016, the Dividend Allowance replaced Divided Tax Credits. The allowance is available to individuals with dividend income and allows you to earn £2,000 tax free, regardless of any other income. Dividends received within pension funds that are currently exempt from tax, and those received on shares held within an Individual Savings Account (ISA), will continue to be tax free.

Above this you will pay dividend tax as follows:

Tax Band   Tax Rate  (2018/2019)          Tax Rate (2019/2020)       Change?
Basic Rate 7.5% 7.5% None
Higher Rate 32.5% 32.5% None
Additional Rate        38.1% 38.1% None
Trust Rate 38.1% 38.1% None

 

There are also additional income tax allowances for marriage/civil partnerships and the blind.

What are the capital gains tax rates for the 2019/20 tax year?

In the Chancellor’s budget, he confirmed the below capital gains tax rates for the 2019/2020 tax year. Again, these changes will take effect on the 6 April 2019.

2019/2020

Tax Free Allowance           Group Gains Exceeding Allowance
£12,000

Basic Rate Taxpayers and Bare Trusts

10% (or 18% on Sales of Non-Primary Residence)

£12,000

Higher and Additional Rate Taxpayers                                      

20% (or 28% on Sales of Non-Primary Residence)

Up to £6,000 Discretionary Trusts

20% (or 28% on Sales of Non-Primary Residence)

 

*These rates only apply if you live in England, Wales or Northern Ireland. The devolved Scottish Government sets its own income tax rates.

How does this compare to the 2018/19 tax year?

The below shows the current capital gains tax rates:

2018/2019

Tax Free Allowance   Group Gains Exceeding Allowance Change? 
£11,700

Basic Rate Taxpayers and Bare Trusts                                   

10% (or 18% on Sales of Non-Primary Residence)        

Tax free allowance up by £300

£11,700

Higher and Additional Rate Taxpayers

20% (or 28% on Sales of Non-Primary Residence)

Tax free allowance up by £300

Up to £5,850 Discretionary Trusts

20% (or 28% on Sales of Non-Primary Residence)

Tax free allowance up by £150

 

*These rates only apply if you live in England, Wales or Northern Ireland. The devolved Scottish Government sets its own income tax rates.

When tax bands are increased upwards in size or rates reduced this means you can make more gains at a lower or tax free rate and is generally good news for individuals. Conversely, when bands are reduced so they take effect at a lower level or rates are increased, you will find yourself paying more tax.

Have there been any changes to Inheritance Tax?

Category  Allowance (2018/2019)            Allowance (2019/2020)             Change?
Nil Rate Band £325,000 £325,000 None
Residence Nil Rate Band                   £125,000 £150,000 Increased by £25,000

 

As expected, the nil rate band remains frozen at £325,000 and the residence nil rate band has been increased by £25,000. This gives a tax free estate of £475,000 per person, tax on estates above these allowances remains at 40%. Estates transferring to the surviving spouse remain tax free and their unused allowances are transferable giving a tax free estate on second death of £950,000.

Anything else I should be aware of?

  • The annual ISA limit remains at £20,000, the Junior ISA limit will increase in line with CPI for the 2019/2020 tax year to £4,368.
  • The pension Lifetime Allowance (LTA) will rise to £1,055,000 in the new tax year, there have been no changes announced to the Annual Allowance (AA).
  • National Insurance rates remain unchanged excluding Class 2 and 3 which have increased by 5p and 35p per week respectively. However, there have been changes made to the thresholds.
  • There is to be a consultation on the fairness and complexity of Trust taxation, if this were to be simplified it may increase their attractiveness as tools for tax planning.

 

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Should you need the advice of an independent financial adviser, please contact Natasha Hellewell.