There were no changes to rates of income tax announced in the Budget.
Allowances and tax bands
The personal allowance for 2019-20 and 2020-21 will be £12,500, with the income on which you start to pay tax at 40% increasing to £50,000. For subsequent years, increases to the personal allowance and basic rate limit will be indexed with the CPI (The Consumer Price Index)
This means that most people with straight forward tax affairs and no benefits in kind (for example, cars or health insurance) should have a tax code of 1250L taking effect in April 2019.
Other allowance levels can be found on the HMRC web site here.
The ISA limit will remain at £20,000 for 2018-9.
The Lifetime ISA
A reminder that the ‘Lifetime ISA’ was introduced from 6 April 2017. This allow adults under 40 to open a Lifetime ISA and pay in up to £4,000 per annum. The government will add a 25% bonus to the ISA, so, up to £1,000.
Contributions can continue up to the age of 50.
Funds can be used to buy a first home at any time from 12 months after opening the account, and can be withdrawn, with the bonus, from the age of 60.
Savers can make withdrawals at any time before the age of 60, but the bonus element and any interest or growth on it will have to be returned to the government, and an additional 5% charge will be applied if the withdrawal is not for the purchase of your first home.
The nil rate dividend allowance reduced from £5,000 to £2,000 from April 2018. It will remain at £2,000 for 2019-20.
There are two types of Tax Credits; Working Tax Credit (WTC) and Child Tax Credit (CTC). The CTC is potentially available to families who have responsibility for one or more child.
There were no changes to tax credits announced in the Budget 2017. The rates of payments have increased slightly for disabled workers and children, but remain largely the same.
Universal Credit a new benefit system being phased in currently. It replaces the following benefits:
- Child Tax Credit
- Housing Benefit
- Income Support
- income-based Jobseeker’s Allowance
- income-related Employment and Support Allowance
- Working Tax Credit
It is being phased in by region, to new claimants initially and then existing claimants transferred over later.
The Chancellor announced in the Budget that claimants will be able to earn an extra £1,000 before having their benefit reduced.
There were no changes announced to child benefit in Budget. Rates for 2019-2020 will remain at £20.70 for the first child and £13.70 for subsequent children.
Don’t forget that there are special rules for higher earners which mean that, once the income of one of the parents reaches £50,000, 1% of the Child Benefit award will effectively be lost for every £100 of that parent’s income between £50,000 and £60,000 and at £60,000 of income, any remaining benefit will be withdrawn.
Capital gains tax
Currently, if an individual sells a property that they have both lived in and rented out during their period of ownership, there is a capital gains tax relief – letting relief – that potentially reduces the taxable gain. The Chancellor announced that letting relief will be reformed so that it only applies when the owner of the property is in shared occupancy with a tenant. There will be a consultation on the details.
For disposals of residential property by UK residents made on or after 6 April 2020, a return in respect of the disposal must be made to HMRC within 30 days of the disposal, and a payment on account made at the same time. The self-assessed calculation of the amount payable on account takes into consideration unused losses and the person’s annual exempt amount. The rate of tax for individuals is determined after making a reasonable estimate of the amount of taxable income for the year.
A reminder of the interest restrictions announced in the Summer Budget 2015 that started to come in to effect from April 2017:
Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits if they pay tax at the higher rate. They will instead receive a basic rate reduction from their income tax liability for their finance costs.
Landlords will be able to obtain relief as follows:
- in 2017-18 the deduction from property income will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction.
- in 2018-19, 50% finance costs deduction and 50% given as a basic rate tax reduction.
- in 2019-20, 25% finance costs deduction and 75% given as a basic rate tax reduction.
- from 2020-21 all financing costs incurred by a landlord will be given as a basic rate tax reduction.
Rent a room
Rent a Room relief, which provides for tax-free income that can be received from renting out a room or rooms in an individual’s only or main residential property remains at £7,500 per year.
It was announced in Budget 2017 that there will be a consultation on the future of rent a room relief. This consultation has now concluded and there will be no changes to rent a room relief.
Making Tax Digital
Making Tax Digital (MTD) has been going through consultations over the past few years. There were no new announcements in the Budget.
Under the scheme, limited companies, unincorporated business and landlords will have to use online software to report their income and expenses to HMRC at least quarterly.
From April 2019, all VAT registered businesses with a turnover in excess of the VAT threshold (£85,000) will be required to file their VAT returns through compliant software under making tax digital. They will no longer be able to manually type figures into the HMRC website. There will be bridging software available to allow businesses keeping their records in Excel to file under MTD.