Happy New (tax) Year! Along with changes to the UK tax system, the new tax year signifies a fresh start for many of your tax allowances and limits – which means it’s a time of financial planning opportunity for maximising your tax efficiency.
Here’s our rundown of the key changes to look out for.
Personal Tax, thresholds and allowances
The Personal Allowance – the amount you can earn before paying Income Tax – increases on 6th April 2019 to £12,500 from £11,850. This will lead to a small reduction in the amount of tax paid each year for most people.
In England, Northern Ireland and Wales, the threshold for paying the Higher Rate of income tax (which is 40%) increases to £50,000 from £46,350. This amount includes the increased Personal Allowance.
For residents in Scotland, the threshold for paying the Higher Rate of Income Tax drops slightly from £44,274 to £43,431. These bands and rates of income tax only apply to non-savings income such as your earnings, pension income or rental income.
Full breakdown of the new Income Tax bands:
|Rate||Scotland||Rest of the UK|
|19% (starter rate)||£12,500 – £14,549||n/a|
|20% (basic rate)||£14,550 – £24,944||£12,501 to £50,000|
|21% (intermediate rate)||£24,945 – £43,430||n/a|
|40% (higher rate UK)||n/a||£50,001 to £150,000|
|41% (higher rate Scotland)||£43,431 – £150,000||n/a|
|45% (additional rate UK)||n/a||Over £150,000|
|46% (top rate Scotland)||Over £150,000||n/a|
The tax-relieved amount you can pay into a personal pension remains capped at the lower of your earnings and £40,000 per tax year. Your annual allowance may be higher if you’ve not used all if it in the last 3 years. Or it might be much less if you earn over £110,000 a year or have started taking your pension. This can get complicated and we’d recommend speaking to a financial planner if you think you are affected.
The lifetime allowance for pension savings increases from 6th April 2019 to £1,055,000 from £1,030,000. This is welcome additional headroom for those approaching and in retirement whose funds are close to the threshold.
Capital Gains Tax (CGT)
The capital gains tax allowance will increase by £300 to £12,000 from April 2019. Use of the capital gain tax allowance is an important aspect of tax efficient planning so any increase in this is likely to be a positive for those holding assets that generate gains.
Entrepreneurs’ relief can reduce the rate of CGT on disposals of certain business assets from 20% to 10%.
From 6th April 2019, the minimum period throughout which the qualifying conditions for Entrepreneurs’ Relief must be met will be extended from 12-months to 24-months.
Individual Savings Account (ISA) allowance
The ISA allowance remains unchanged at £20,000 for the new tax year.
An ISA can play an important role in savings and planning your finances and, if you’re nearing the £20,000 limit, it’s really important you give consideration to whether or not you’re using the right saving and investments vehicles for the excess. As with all investments, their value can go down as well as up, and could be worth less than what was paid in. If you’re unsure, this is something your financial planner can help with.
Take advantage of your new reliefs and allowances
Much like the resolutions we make on January 1st, the new tax year provide a good opportunity for a “fresh start” when it comes to your financial situation. Speak to your financial planner to take advantage of the opportunities that are now open to you in the new tax year. Making a payment into a pension or ISA, earlier in the tax year can give your money a longer investment period in a tax-advantaged investment.
If you don’t currently have an adviser, we’d be delighted to help you look after your finances. Get in touch for a no-obligation consultation with one of our financial planners to see what we can do for you.
Laws and tax rules may change in the future and the information here is based on our understanding in April 2019. Personal circumstances also have an impact on tax treatment. Investments can go down as well as up meaning you may get back less than you put in. The information in this blog or any response to comments should not be regarded as financial advice.