Who would have thought summarising a new tax year would feel like a little light relief? For a change, we can bring you some good news and certainty regarding tax!
As we spring into another tax year we’ll identify the changes, reacquaint ourselves with the old stuff, and forget about politics for a while.
7 key tax facts to remember
1. You can earn more before paying tax
Our personal allowance is rising to £12,500 while our higher rate threshold bounces up to £50,000 (except in Scotland, where it remains £43,430). Sorry, Scotland! However, you do get some things we don’t like free University fees!
Remember your personal allowance starts to reduce once adjusted net income exceeds £100,000, and will reduce to zero in 2019/20 where adjusted net income is £125,000 or more.
2. Married couples benefit
Marriage allowance – If you earn under £50,000 and your partner is a non-tax payer (earning under £12,500), marriage allowance allows you to give 10% of your personal allowance to your spouse or civil partner. When the ‘giver’ is a non-taxpayer and the ‘receiver’ pays tax at no more than basic rate. The amount is £1,190 (2018/19) and increases to £1,250 (2019/20).
Once you have applied for marriage allowance, HMRC will continue to allocate 10% additional personal allowance to the receiving spouse (and 10% less to the other spouse) each tax year until told otherwise. Every little helps!
3. Annual and lifetime tax allowance
Sorry, there is no change to annual allowance. However, the lifetime allowance creeps up by £25,000 to £1.055m. If you are tackling the pension issue yourself, make sure you take this new figure into account. Who wouldn’t want to speak to their financial adviser for some guidance on this one?
4. Inheritance tax
The 2nd part of the review into inheritance tax is still in the hands of the Office of Tax Simplification (we know this will be anything but ‘simple’!).
You can start by using the inheritance tax residence nil rate band, which increases by 20% to £150,000 as long as your estate net value doesn’t exceed £2,000,000. As a majority of people’s wealth is in their homes this will ease the burden a little. Unfortunately, most people end up paying unnecessary inheritance tax due to lack of planning, so please make sure you are not one of them!
Remember to use your simple annual gift allowances (£3,000 per year). If you haven’t used them lately you can carry them forward i.e. if you didn’t use last years, you can gift £6,000 this year. Inheritance tax is a very complex area, there are exemptions waiting for you to use, but please remember that there are penalties for breaking the rules. I would strongly recommend that you ask your financial adviser for advice in this area.
5. ISA annual allowance
ISA limits remain at £20,000 (which includes £4,000 into a Lifetime ISA if used). There is good news for the junior ISA as this limit does rise by £108 a year, bringing the total to £4,368.
Reminder: Help-to-Buy ISA’s close to new investors in December 2019.
6. Buy-to-let investors
Ok here comes some bad news…
This is when the planned reduction in tax efficiency for a buy-to-let mortgage interest changes comes into effect. Only 25% of interest will receive full tax relief, the rest will receive a 20% tax credit. With this in mind, it may be time to review your property portfolio to see if it’s still the most effective way to invest? We can help find alternatives so you can fully compare and make an informed decision.
7. Capital gains tax
Don’t forget capital gains tax is a useful allowance when thinking ahead for the next tax year, however, this tax is often-the-forgotten cousin of income tax.
The capital gains tax allowance for 2019/20 is £12,000… so £24,000 for a couple is not to be sniffed at. Assets can be transferred between spouses on a no-gain, no-loss basis. You can make use of both exemptions/basic rate bands, or offset one spouse’s loss against the other’s gain. Transfers must be outright and unconditional. Remember the capital gains tax allowance cannot be carried forward if unused in a tax year. Use it or lose it!
All in all, this year, more than most we can see the benefits of planning ahead, particularly when it comes to NHS pensions and annual allowances.
Many of you may be facing tax liabilities, some of which may have been reduced or avoided if you’d planned ahead. If you haven’t already put your planning head on, as Churchill said: “plans are of little importance but planning is essential”.
The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.
How do you feel about the tax changes? Let us know by adding a comment below.