Budget 2018 – Personal Tax Briefing

November 2018
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There were no changes to the rates of personal taxes, income tax, capital gains and inheritance tax but some allowances were increased to give taxpayers and savers an opportunity to keep more of their wealth.

Income Tax

The personal allowance before any tax is payable will increase from £11,850 this year to £12,500 on 6 April 2019. This saving is worth £130 per year to a basic rate taxpayer. Tax at the basic rate of 20% will be paid on the next £37,500 of income, with 40% tax not starting until income reaches £50,000 in 2019/20. This gives a higher rate taxpayer an overall saving of £860 per year or £71.66 per month from April 2019. These increased allowances will also apply in 2020/21 and be linked to CPI from 2021/22.

The increase in these bands will increase the number of married couples who are able to benefit from the transferrable marriage allowance. Where one is a non-taxpayer and the other has less than £50,000 of taxable income (currently £46,350), up to 10% of the personal allowance can be transferred to the higher earner. This currently saves £238 of tax per year but will increase to £250 after April 2019.

Couples who have not yet claimed this allowance can backdate it for up to four years, which could result in a one-off tax refund of around £900 and will save £250 per year from next April. Cohabiting couples do not qualify for this tax break.

Tax on Savings

For those savers with modest income, the starting rate for tax on savings remains at 0% for the first £5,000 of savings income. This is in addition to the personal allowance, and exempt savings allowances for interest and dividends, so from April 2019 up to £20,500 could be earned from savings and investments before any tax becomes payable, in addition to tax exempt ISA income.

Once realised gains falling within the increased capital gains tax free allowance of £12,000 are added in, the overall tax free savings allowances for all but top rate taxpayers, increases to £32,500, an increase of £950 compared to this year. See How to Earn up to £31,550 From Investments Tax Free.

Top rate taxpayers get no respite, with 45% tax applying on income over £150,000 and with the loss of personal allowance on a £1 for £2 over the £100,000 threshold. This gives an effective tax rate of 60% on earnings between £100,000 and £125,000 which can be cancelled out by making personal pension contributions or charitable gift aid donations.

Buy to Let Squeezed Again

In addition to the reduction in interest rate relief, set in motion in 2017, which will eventually see interest rate relief against letting profits reduced to 20%, capital gains relief on letting property and second homes is set to change from April 2020.

The Government will consult on its proposals to reduce the final occupancy exempt period from 18 months to 9 months, which will affect all second home owners. They will also revise residential letting relief with the effect likely to be an increase in the gain chargeable to tax when a property is sold at a profit.

Kay Ingram
Director of Public Policy, LEBC

Please remember, no news or research item is a recommendation or advice to buy. LEBC Group Ltd is not responsible for accuracy and may not share the author’s views. The Financial Conduct Authority does not regulate tax planning. Tax rates and allowances may change in future.

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