Five personal tax changes for the new tax year
For personal tax, the new tax year starts on April 6 2018 and brings with it a host of tax changes and new regulations.
Will you get a tax cut or end up paying more?
There will be some winners and some losers this year, but whatever your financial position, you need to know how the changes will affect you.
Here are the five changes that we think are most important for personal finances.
Income tax bands
Millions of workers will benefit as the personal tax allowance goes from £11,500 to £11,850 right the way across the UK.
This equates to a tax cut of up to £472 per year.
The higher rate threshold is also increasing to £46,350 in England, Wales and Northern Ireland. But the tax rates of 20% for basic earners, 40% for higher rate payers and 45% for additional rate payers remains the same.
In Scotland, two new income tax bands will be introduced from this year. A starter rate will be introduced from £11,850 to £13,850 and an intermediate rate is introduced from £24,000 to £43,430. The higher rate in Scotland will rise to £43,430.
If you take home any income from dividends then you could be charged more tax in 2018/19. This also applies to any dividends on savings.
The tax-free dividend allowance, which has already been reduced to £5,000 for the past two years, will fall further to £2,000.
Above this threshold dividends will be taxed according to your tax band. You’ll pay tax on dividends at 7.5% if you are a basic rate taxpayer, 32.5% for higher rate payers and 38.1% for additional rate payers.
If you took home £5,000 in dividends last year and take the same in 2018/19, then you will pay an extra £225, £975 or £1,143 depending on your tax band.
Residence nil-rate band
The inheritance tax threshold remains unchanged at £325,000 or £650,000 for married couples and civil partners.
But the supplementary residence nil-rate band or ‘main residence allowance’ will increase from £100,000 to £125,000.
This allowance only applies to your main residence and it can only be applied to direct descendants - i.e. children, grandchildren and step, foster or adopted children.
This will rise to £150,000 in the 2019/20 tax year and £175,000 the year after that.
Buy-to-let mortgage interest
In 2017/18, landlords could claim three-quarters of their mortgage interest at the higher rate of tax and a quarter at lower basic-rate tax.
In 2018/19 landlords will only be able to claim higher half at higher rate and the other half at basic.
Higher rate relief will reduce to a quarter in 2019/20 and nil in 2020/21.
This will make a serious impact on buy-to-let landlords with a high level of borrowing.
Junior ISA limit
People saving for their children will benefit from a slightly increased tax-free savings on Junior ISAs, with the limit rising from £4,128 to £4,260.
The adult ISA limit remains unchanged at £20,000.