As this financial year draws to a close, there are a number of tax changes taking place that you’ll need to be aware of. HMRC have announced changes to the personal allowance, as well as council tax and the capital gains threshold.
Personal Allowance tax changes
Good news! If you’re a basic-rate taxpayer, your personal allowance will increase from £11,500 to £11,850 in April 2018.
This means that the amount you can earn before paying tax on it will increase by £70 and is part of the government push to increase the basic-rate personal allowance to £12,500 by 2020.
If you’re a higher-rate taxpayer, the threshold will increase to £46,350 from £45,000. However, should you fall into the top tax band, there will be no change to your current £150,000 allowance.
Marriage allowance tax changes
The marriage allowance means an individual can transfer 10% of their personal allowance to their civil partner or spouse, as long as the other person is not a higher or additional-rate taxpayer.
If your partner dies before you have the chance to claim marriage allowance, new rules state that you can claim for up to four years of backdated payments. This is only applicable if you and your spouse were eligible to claim from April 2015 onwards.
Dividend tax allowance tax changes
The tax-free dividend allowance will fall in April from £5,000 to £2,000. This will only affect an estimated two thirds of those with dividend income, but should you find yourself making a loss, it’s likely to average around £315 each year.
For dividend income above £2,000, the rate of tax will be 7.5% for basic-rate taxpayers, 32.5% for higher-rate and 38.1% for additional rate payers.
Mortgage interest tax relief tax changes
In a push to phase out mortgage interest tax relief by 2020, the 6th of April in 2018 will see landlords only able to offset 50% of mortgage interest against their profits.
In the past, landlords were able to deduct 100% of their mortgage interest against their taxable profit, but in April 2017 this was reduced to 75%.
By 2020, the government will implement a 20% tax credit saving on a landlord’s mortgage interest.
Pension allowance limit tax changes
Higher inflation means that the standard lifetime allowance limit will rise from £1m to £1.03m this coming April.
The standard lifetime allowance limit is the amount an individual can accumulate without having to pay tax on it in their pension pot.
Council tax tax changes
In an effort to increase funding for social care services, local authorities will be given the authority to raise council tax by 2.99%. In 152 councils, including all London Boroughs, county councils and unitary and metropolitan authorities, a 5.99% rise could be implemented.
This means that for a Band D council tax payer, their bill is liable to increase by £95.
Inheritance tax gain limit tax changes
The amount of tax-free inheritance will rise from £100,000 per person to £125,000. This will give individuals a value of £450,000 tax-free inheritance, and £900,000 for couples. However, this will only apply to recipients of the property who are direct descendants of the deceased. This figure will continue to rise each year until 2020.
Please note that that siblings, nieces and nephews, and cousins are not eligible to benefit from the extra £125,000 allowance.
Capital gains tax threshold tax changes
Capital gains tax is the taxation applied to any profit you make from the sale of an asset that has increased in value.
For the tax year 2017/18, this threshold was at £11,300, but will increase to £11,700 for the tax year 2018/19. Great news for those who regularly invest in and offload assets, as this means you can make an additional £400 before tax must be paid!
For married couples and civil partners, combining the two amounts is still allowed, so their annual allowance will total £23,400.
Though other savings options remain untouched, the Junior ISA tax-free savings allowance will increase from £4,128 to £4,260.
If you have a Help to Buy ISA, you can transfer funds into a Lifetime ISA without that amount counting towards your £4,000 allowance, as long as the transfer occurs before the 6th April 2018. Take advantage of this opportunity if you can, as it will mean a more substantial pot of savings that could go towards retirement or buying a property.
First time Buyers vs Stamp Duty – savings continue!
Stamp duty for first time buyers was abolished in 2017 for properties worth up to £300,000. This will continue to apply, with the charge set at 5% for any value exceeding £300,000 but still below £500,000.
For properties worth more than £500,000, the standard rate of stamp duty will apply: 2% on the value between £125,000 and £250,000, and 5% on the value between £250,000 and £500,000.
Car tax for diesel cars tax changes
If your diesel car fails to meet the latest Euro 6 standards in a ‘real-world’ test as of April 2018, they will go up a VED band – this incurs a higher rate of tax. These tighter regulations are being put in place in order to fund a new £220 million Clear Air Fund, which will provide finances for local air quality plans.
Euro 6 standards specifically target Nitrogen Oxide and Carbon Dioxide emissions. After April 2018, your diesel car must not emit over 80mg/km of NOx and 50mg/km of CO2 to comply with the regulations. Up to this level of emissions, you’ll be taxed £25. If your new diesel car emits £191-225mg/km of CO2, you’ll be charged £1,700. This is £500 more than current rates.
If you use a company car, your employer will need to be aware that the tax on diesel cars is rising from 3% to 4%.
And there you have it! If you want to get in touch with Modina to discuss these changes, don’t hesitate to give us a call on 020 7183 8241, or drop us an email on firstname.lastname@example.org.
We know that there have been some surprising changes this year, most notably the significant decrease in tax-free dividends. If you’re looking for ways to minimise your tax liabilities, we’d be more than happy to help you rejig your finances.