The new tax year starts on 6th April and with it comes changes to the tax rates and thresholds.
Below we have summarised what we consider the most important changes.
The tax-free dividend allowance will be reduced from £5,000 to £2,000 per year for 2018/19 onwards. This will mostly affect directors of small businesses who pay themselves through dividends rather than salary and investors with dividend-generating shares. This change will bring an additional tax liability of £225 for a basic-rate taxpayer, £975 for higher-rate taxpayer and £1,143 for an additional-rate taxpayer.
Capital Gains Tax:
The Capital Gains Tax annual exemption increases from £11,300 to £11,700 from the new 2018/19 tax year.
The National Living Wage (NLW) will increase from £7.50 to £7.83 an hour while the National Minimum Wage (NMW) for those employed under 25 will also increase as following:
|Category of worker||Hourly rate in 18/19||Hourly rate in 17/18|
|Aged 25 and above (national living wage rate)||£7.83||£7.50|
|Aged 21 to 24 inclusive||£7.38||£7.05|
|Aged 18 to 20 inclusive||£5.90||£5.60|
|Aged under 18 (but above compulsory school leaving age)||£4.20||£4.05|
|Apprentices aged under 19||£3.70||£3.50|
In this new tax year, the amount that can be earned before start paying tax will increase from £11,500 to £11,850, setting up the basic tax code at 1185L.
Income Tax Bands:
The income tax bands of taxable income will rise as well as shown in the table below:
|Band||Tax rate||Taxable income 2018-19||Taxable income 2017-18|
|Personal Allowance||0%||Up to £11, 850||Up to £11,500|
|Basic rate||20%||£11, 851 to £46,350||£11,501 to £45,000|
|Higher rate||40%||£46,351 to £150,000||£45,001 to £150,000|
|Additional rate||45%||over £150,000||over £150,000|
Up to April 2017, mortgage interest was fully deductible against rental profit. This allowable expense was reduced to 75% of the total mortgage interest in 2017/18 and is now further reduced to 50%. The remaining 50% will be given as a tax relief to the basic rate of income tax, currently at 20%. This will be further reduced to 25% and 75% available as a tax relief from 2019/2020 and from 2020 all financial costs will be given as a basic rate tax deduction.
The minimum contributions for automatic enrolment pensions will increase as following:
|Employer Minimum Contributions||Employee Contributions||Total Minimum Contribution|
|Until April 18||1%||1%||2%|
|6 April 18 – 5 April 19||2%||3%||5%|
|6 April 19 onwards||3%||5%||8%|
National Insurance Contributions for self-employed people:
National Insurance Contributions (NICs) for sole traders will be set as per the below:
- Class 4 NICs are payable at 9% on business profits between the Lower Profits Limit of £8,424 (£8,164 in 2017/2018) and Upper Profits Limit of £46,350 (£45,000 in 2017/2018) and 2% on profits above £46,350 a year.
- Class 2 NICs, paid on profits of £6,205 or more, will rise from £2.85 to £2.95.