Happy New Tax Year everyone.
The UK’s tax year run from 6th April to 5th April of the following year. So, welcome to the 2018-19 tax year. The government has initiated some changes that will affect most people.
Read our 2018/2019 tax year summary to see which elements apply to your financial life.
2018/2018 tax free Personal Allowance
The income tax free Personal Allowance is the amount you are allowed to earn before you start paying any income tax. In the 2018/2019 tax year it has gone up by £350 to £11,850 which is good news.
New regulations mean that those whose adjusted net income exceeds £123,700 will not receive any Personal Allowance.
2018/2019 Tax Codes
With the tax free personal allowance going up the standard tax code for the new tax year will be 1185L which is a change from 1150L.
Income Tax Bands
Your income tax band tells you what rate of income tax you are paying. These are usually adjusted at the beginning of each new tax year and 2018-19 rates are as follows:
England, Wales, Northern Ireland
Basic rate: 20% rate, starting from income of £11,850
Higher Rate: 40%, starting from income over £46,350 (2017-18 was £45,000)
Additional Rate: 45%, on any income over £150,000
Scotland
19% rate: on income from £11,850 to £13,850
20% rate: on income from £13,850 to £24,000
21% rate: on income from £24,000 to £43,430
41% rate: on income from £43,430 to £150,000
46% rate: on income over £150,000
NB: The Scottish Personal Allowance amount is the same as the rest of the UK.
State Pensions
The triple lock pension rule means that your state pension will go up every year in line with the highest of either inflation, average earnings or a minimum of 2.5%. Currently, inflation and average earnings are over 2.5%, so state pensions should see a 3% increase. This equates to an extra weekly sum of £4.78 added onto the current £159.55 weekly rate.
Private Pensions
The Lifetime Pension limit is going up by £300,000, to £1,300,000. This will be welcomed by people who have seen the amount they can put away into a private pension decreasing for the last seven years.
Death Duty
The Inheritance Tax Allowance is going up to £125,000 per person.
Last year’s residence nil rate band enabled direct descendants (only) to save an additional £100,000 on an inherited family property.
Combining the nil-rate band with the new Inheritance Tax Allowance equates to a £450,000 tax free inheritance amount for your family.
Buy-to-let Mortgage Interest
The government are on a descending ladder to 0% tax relief on mortgage interest payments for buy-to-let landlords. Originally, the whole amount of mortgage interest could be offset against your rental income. In 2017-18 it came down to 75%, this 2018-19 tax year sees that falling even further to 50%. This pattern continues next tax year, until the final 25% reduction gets to 0% in 2020-21.
This is a big hit for some landlords’ income, particularly if they are working with interest only mortgages.
Dividend Allowance
A large reduction in the dividend allowance rates will mainly affect investors and business owners who pay their own salary through dividends. The rate was £5,000 and is now only £2,000. Whilst pensions and ISAs are safe from any ill-effects, stocks with high yields are not.
The Dividend Rates will now be:
Basic Rate taxpayer – 7.5%
Higher Rate taxpayer – 32.5%
Additional Rate taxpayer – 38.1%
Council Tax
Local authorities are now allowed to increase council tax bills by up to 6% without having a local vote. It is considered likely that most local councils will raise council tax substantially, in order to maintain services that have been depleted by a consistent lack of central government funding. This will come as a shock to many taxpayers who will be trying to find money to cover the steepest rise in their council tax bill in over a decade.
TRS Money
Our free Money guides and calculators are here to support you with your personal budget and can assist in saving you money in many different ways.
