Tax Update

On Wednesday 13 March 2019, the Chancellor Philip Hammond presented his second Spring Statement detailing some of the key up-and-coming changes for the new tax year. A summary of the Chancellor’s speech together with a general update of upcoming changes can be summarised as follows:-

Tax for the individual

Rates and Allowances

Income tax bands for 2018/19

  • Personal allowance – up to £11,850.00 – 0%
  • Basic rate – £11,851.00 to £46,350.00 – 20% 
  • Higher rate – £46,351.00 to £150,000.00 – 40% 
  • Additional rate – over £150,000 – 45%

Income tax bands for 2019/20

  • Personal allowance – up to £12,500 – 0%
  • Basic rate – £12,501 – £50,000 – 20% 
  • Higher rate – £50,001 – £150,000 – 40% 
  • Additional rate – over £150,000 – 45%

Capital gains tax allowance for 2018/19

  • For individuals – £11,700 
  • For Trustees – £5,850

Capital gains tax allowance for 2019/20

  • For individuals – £12,000 
  • For Trustees – £6,000

Notable changes

The Personal Allowance

Q. What is it?

A. The amount of income that you don’t have to pay tax on.

Q. What’s changed?

A. Nothing much, for 2018/19 the Personal Allowance is £11,850.00 and for 2019/20 this will increase to £12,500.00.

Those with ‘adjusted net income’ of £100,000.00

Q. What is this?

A. Adjusted net income is the total taxable income before any Personal Allowances and less certain tax reliefs such as trading losses or (gross) pension contributions. To calculate your adjusted net income there are four key steps which must be done:-

Step 1 – calculate you net income

Add up your taxable income. This could include the money you earn from you job, state benefits, most pensions, dividends, rental income (etc.). Then you must take off any tax reliefs that may apply such as gross payments to pension schemes or trading losses.

Step 2 – take off gift aid donations

Take off any ‘grossed-up’ donations – what you paid plus the basic rate of tax

Step 3 – take off pension contributions

If you made a contribution to a pension scheme where your pension provider has already given you tax relief at basic rate, take off the ‘grossed-up’ amount – what you paid plus the basic rate of tax.

Step 4 – add back tax relief for payments to trade unions or police organisations

Tax relief of up to £100 is available if you make payments to a trade union or police organisation for superannuation, life insurance or funeral benefits.

Q. What’s changed?

A. For those with adjusted net income above the £100,000.00 mark, there will be a reduction of £1.00 for every £2.00 of income above this amount. For the 2018/19 tax year, the personal allowance is completely lost when adjusted net income reaches £123,700, and for the 2019/20 tax year the personal allowance will be lost where adjusted net income exceeds £125,000.

The marriage allowance

Q. What is it?

A. Allows you to transfer £1,190.00 of your Personal Allowance to your spouse or civil partner if they earn more than you. To benefit from this allowance, the lower earner of the couple must normally have an income of below the Personal Allowance of £11,850.00.

Q. What’s changed?

A. Where both individuals in a marriage or civil partnership pay tax at no more than the basic rate, 10% of their Personal Allowance to be transferred to their spouse or civil partner. This can be claimed by an individual’s Executor following their death. It should be noted that it is now possible for the deceased’s Executor to make a backdated claim for this allowance for all years from 2015/16.

Savings Allowance

Q. What is it?

A. The amount of savings income an individual can have without being taxed, for example interested generated from a bank or building society. Savings income is linked with an individual’s income tax band. Generally speaking, individuals who are taxed up to the ‘basic rate’ have an allowance of £1,000.00. For ‘higher rate’ taxpayers the allowance is £500.00. There is no allowance for ‘additional rate’ taxpayers.

Commercial tax

Structures and buildings allowance

Q. What is it?

A. A tax relief on the construction costs for qualifying buildings.

Q. What do I need to know if I am a business owner intending expand, or an investor looking for an investment opportunity?

A. In a bid to improve the UK’s international competiveness, there will be some relief on the construction costs for some non-residential structures and buildings incurred after 29 October 2018. The relief will also apply to the improvement of some existing structures and buildings. Relief is limited to the original cost of construction or renovation and given across a fixed 50 year period, at an annual rate of 2% regardless of change in ownership.

Capital tax

Inheritance tax – nil-rate-band

Q. What is it?

A. Broadly, it is the amount up to which a deceased person’s Estate does not have to pay inheritance tax. It is sometimes called the ‘inheritance tax threshold’.

Q. What do I need to know?

A. Since April 2009, the nil-rate-band has remained at £325,000 and it is frozen at this amount until April 2021.

Inheritance tax – residence nil-rate-band

Q. What is it?

A. From April 2017, the government introduced a new nil-rate-band linked specifically with an individual’s primary place of residence (typically the family home). It is being gradually phased in starting at £125,000.00 up to £175,000.00 by 2020/21. This additional nil-rate-band makes it easier to transfer the family home to an individual’s direct descendants.

Q. What do I need to know?

A. Arguably it would have been simpler for the government to simply increase the ‘normal’ nil-rate-band, but nevertheless having the additional nil-rate-band linked to the family home is undoubtedly a useful thing to have. To fully utilise it however, it is important that people revisit their wills to ensure that the nil-rated amount is not lost. The residence nil-rate-band is a complicated piece of legislation and so it would be prudent to take appropriate advice when carrying out any form of personal estate planning.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contact Us