Individual Taxation / Personal Tax Changes for April 2018…
Ahead of the Autumn Budget there will be some important changes to individual taxation which will take effect from the 6th April 2018. Those changes, which are expected to take place are listed below:
- A change to mortgage interest on residential property lettings will take place for 2018/2019. Only 50% of any interest paid will be fully deductible from rental income with relief for the other 50% which will be given as a basic rate tax reducer. The proportions were 75% and 25% in 2017/2018 so higher and additional rate taxpayers will see an increased tax liability. This may be more than expected as only the deductible interest is taking into account for calculating the taxable income. So for example those with income over £50,000 who have a child benefit clawback will see this affected too, as will those whose income is over £100,000 meaning their personal allowance is tapered.
- The dividend allowance which was introduced at £5,000 in 2016/2017 is to be reduced to £2,000 for 2018/2019 onwards. This would mean an additional tax liability of £225 for a basic rate taxpayer, £975 higher rate and £1,143 additional rate.
- Class 2 national insurance contributions were expected to be abolished from April 2018 but this has been deferred for a year pending a further review.
- Residence nil rate band for Inheritance Tax. This was introduced from 2017/2018 but the amount increases for deaths on or after 6th April 2018 to £125,000. The IHT nil rate band itself is frozen up to 5th April 2021. It will have been at the same level of £325,000 since 2009/2010.
- The lifetime allowance for pension savings will increase from £1m to £1,030,000 in line with CPI (Consumer Price Index) for the tax year 2018/2019.
- The government have published that the personal allowance and the basic rate is set to rise in 2018/2019. The personal allowance is set to rise to £11,850 (£11,500 in 2017/2018) and the basic rate is set to rise to £34,500 (£11,501 – £33,500 in 2017/2018). The higher rate threshold will be £34,501 to £150,000 (£33,500 – £150,000 in 2017/2018) the additional rate is set to stay the same.
- Similarly if existing rules apply the capital gains tax annual exemption is £11,300 for the year ending 5 April 2018 and is likely to increase to £11,700 for the next tax year, but this will be confirmed in due course.
- The rules for calculating profits from self-employment and property income have changed from 2017/2018 and this will be relevant as people start to complete their 2017/2018 tax returns. For self-employment businesses the cash basis (i.e. basing income and expenses on amounts received and paid rather than relating amounts to those due in or for the tax year in question) can apply for turnover up to £150,000 rather than £85,000 and a simpler regime for dealing with capital expenditure will apply. For property businesses the cash basis will apply by default for income up to £150,000.
To find out more about how we can help regarding the changes highlighted above, when considering any law related issues, please visit https://www.lambandholmes.com/private-client-services or alternatively please contact our Kettering office on 01536 513 195 or our Corby office on 01536 745 168 dependent on your location.