How will the new tax year affect you?
As of today (6th April 2018) the new tax year has arrived. With this bringing changes for millions of people, it’s important to understand how this will affect you.
Changes to tax free income, pension limits and death duty are just a few that will come into place today. Most UK residents will also see a difference in council tax, mortgage relief payments and dividend allowance.
The pension limit will increase from £1 million to £1.03 million – this is a £30,000 increase which is the first rise in seven years. Since 2010, the overall amount you can save has been declining so this will be a welcomed change for pensioners.
Due to the increasing cost of living, the state pension will most likely rise. Under the triple lock rule, it is stated that pensions are required to increase by the highest level between inflation, a minimum of 2.5 percent or average earnings.
Payments are due to increase by 3 percent as inflation is above both 2.5 percent and earnings. Pensioners will see an extra £4.78 increase a week due to this.
Inheritance tax allowance sees a increase of £125,000 per person – this is great news as families will be able to leave more for their grandchildren and children tax free. As of last April, the “residence nil-rate band” was introduced. This gave individuals an extra £100,000 free from death duties where a family home has been inherited.
If you combine the new rate of £125,000 and the existing nil-rate band, you can now pass on £450,000 without paying any inheritance tax.
It is worth noting that home allowance is only relevant if the property is passed onto “direct descendants”.
You can now earn up to £11,850 before you are required to pay tax, this is an increase of £350 a year. It might seem a small amount but will save most people £70 a year.
For the 2018-19 tax year, dividend allowance will decrease from £5,000 to £2,000. Philip Hammond has made it clear he wants to crackdown on how business owners pay themselves.
Not only will this affect bosses who pay themselves through dividends but also ordinary investors. This will have no effect on investments which are held in ISA’s or pensions, but high-yielding stocks will be under threat.
Mortgage Relief Reduced
For those who are a higher rate taxpayer and have purchased a rental property with a mortgage, you will now be paying more tax as the next stage of cutting tax relief comes into place.
Landlords will only be able to claim higher-rate relief on half on their costs. The other half would then be at the basic rate. By 2020, mortgage relief will be replaced with a 20 percent tax credit.
Council Tax Rise
For most people this will have a huge impact as this is the largest rise on council tax we have seen in 14 years. Last year saw a new rule being implemented allowing councils to raise their tax without having to call for a local vote. This now means councils can raise their bills up to 6 percent.
Let Us Do The Hard Work For You
Here at Stonehouse Accountants we are here to help you get through the new tax year. If you would like some advice or help with this task please, give us a call on 01733 265888.