The new tax year started on April 6. With it comes a number of changes to taxation rules. There are winners, including workers who will pay less income tax and homeowners who will be able to pass more to their children without being hit by inheritance tax. And there are losers, including landlords and investors who receive dividends. Here’s the low-down of what the new tax year will bring:
WINNERS
Workers — more tax-free income
The amount of money you can earn before paying any tax at all — the personal allowance — has risen from £11,500 to £11,850. The higher personal allowance, announced in the November Budget, means a basic-rate taxpayer (at 20%) on £30,000 will be better off by £101 a year. A higher-rate payer (at 40%) who earns £50,000 will pay £236 less tax.
Homeowners — can pass on the family home tax-free
Last April the ‘residence nil-rate band’ took effect for inheritance tax, giving individuals an extra £100,000 free from death duties. It only applies to money tied up in a main residence and can only be left to direct descendants which means children, grandchildren, step, adopted or foster children. For the new tax year the allowance rises to £125,000 per person.
Inheritance tax is charged at 40% on the value of estates above £325,000, or £650,000 between a couple. With the new rates, a couple could pass on up to £900,000 without inheritance tax being triggered. The residence allowance is set to rise to £150,000 in the 2019-20 tax year, and £175,000 in the following one.
Savers — better pension tax breaks
The lifetime allowance for pension savings will increase in line with inflation, rising to £1,030,000 for 2018-19. Any pension savings above this amount will be taxable. The maximum amount you can put into your pension each year remains unchanged at £40,000.
Parents — more tax-free savings for kids
The Junior ISA limit has risen to £4,260, up from £4,128. Those aged 16 or 17 are especially lucky as they can have a Junior Isa allowance plus an adult Isa allowance of £20,000.
Beneficiaries — pay less tax on ISA inheritance
Tax rules on ISAs when a holder dies are changing. Previously, on the death of an ISA holder, the tax-free wrapper disappears so any income or capital gains become taxable. But if an ISA holder dies on, or after, April 6 (2018), the ISA will keep its tax-free status until the administration of the estate is finalised, the account is closed or three years after death, whichever is the earlier.
LOSERS
Investors — reduced dividend allowance
The annual tax-free allowance on dividends has been reduced from £5,000 to £2,000. If you are affected by this change — that is, if you receive an income from dividends outside an ISA — you will pay more tax on this cash. Basic-rate taxpayers will pay 7.5% and for higher and additional- rate taxpayers, the tax is 32.5% and 38.1%. That means a basic-rate payer with £5,000 of dividend income will pay an extra £225 as a result of the changes. A higher-rate payer will pay £975 more and a top-rate payer £1,143.
BTL landlords — pay more tax on rental income
The second stage of cutting tax relief comes in for buy-to-let landlords who pay a higher rate of tax. In the new tax year 2018-19 only 50% of mortgage interest payments will be deductible as a business expense. By 2020 the option will be removed entirely and replaced with a 20% tax credit. Adding all the rent received to income could push landlords into a higher-rate bracket and start to lose the personal allowance and even child benefit.
