RATES AND ALLOWANCES
With the new year brings many changes and in this post, you can find out all about the tax rates and allowances that will apply for the year 2018/19 as well as changes to the income tax bands for Scottish tax payers.
Personal allowance
The personal allowance increases to £11,850 for the 2018/19 tax year. As for 2017/18, the personal allowance is reduced by £1 for every £2 by which adjusted net income exceeds £100,000. This means that anyone with income in excess of £123,700 in 2018/19 will not receive a personal allowance.
Marriage allowance
The marriage allowance – set at 10% of the personal allowance – is increased to £1,185 for 2018/19. Changes are being made to the rules to allow a claim to be made in respect of a deceased spouse or civil partner, and for claims to be back-dated four years.
Income tax rates and thresholds
The basic rate band is increased to £34,500 for 2018/19, raising the rate at which higher rate tax becomes payable to £46,350. As for 2017/18, the additional rate threshold remains at £150,000.
The rates of income tax in the UK (excluding Scotland) are unchanged for 2018/19, with the basic rate remaining at 20%, the higher rate at 40% and the additional rate at 45%.
New income tax bands in Scotland
Two new income tax bands – a starter band and an intermediate band – are to be introduced in Scotland for 2018/19. For 2018/19, Scottish taxpayers will pay tax at the starter rate of 19% on income in excess of the personal allowance of £11,850 up to £13,850, basic rate tax at 20% is payable on income from £13,851 to £24,000, tax at the intermediate rate of 21% is payable on income above £24,000 up to £44,273, tax at the higher rate of 41% is payable on income above £44,273 up to £150,000 and tax is payable at the top rate of 46% on income over £150,000.
Dividend tax
The dividend tax rates for 2018/19 remain at 7.5% to the extent that dividend income falls in the basic rate band, at 32.5% to the extent that dividend income falls in the higher rate band, and at 38.1% to the extent that dividend income falls in the additional rate band. However, the dividend allowance – the band within which dividends are taxed at a zero rate – falls from £5,000 to £2,000 from 6 April 2018.
Savings
The savings allowance remains at £1,000 for basic rate taxpayers and at £500 for higher rate taxpayers for 2018/19. As for 2017/18, additional rate taxpayers do not benefit from a tax-free savings allowance.
The savings rate of tax remains at 0% on the first £5,000. The savings rate is restricted by non-savings income and the benefit of the 0% rate is lost if taxable non-savings income is more than £5,000.
Capital gains tax
The exempt amount for capital gains tax purposes is increased to £11,700 for 2018/19. The rates of capital gains tax remain at 10% to the extent that total taxable income and gains does not exceed the basic rate limit and at 20% where income and gains are more than the basic rate limit. Higher rates of, respectively, 18% and 28%, apply to gains on residential property.
Corporation tax
The rate of corporation tax for the financial year 2018 (the year starting on 1 April 2018) remains at 19%.
VAT threshold
The VAT threshold is frozen at its current level of £85,000 for two years from 1 April 2018. The VAT de-registration threshold remains at £83,000.
National Insurance contributions
For 2018/19 the lower earnings limit for Class 1 National Insurance purposes is increased to £116 per week, the primary and secondary thresholds are increased to £162 per week and the upper earnings limit is increased to £892 per week. The upper secondary threshold for under 21s and the apprentice upper secondary threshold, both aligned with the upper earnings limit, increase to £892 per week for 2018/19.
The main primary rate of Class 1 contributions remains at 12%, the additional rate remains at 2% and the secondary rate remains at 13.8%.
The National Insurance employment allowance remains at £3,000 for 2018/19.
The Class 2 small profits limit rises to £6,205 for 2018/19 and the weekly rate of Class 2 contributions increases to £2.95 per week.
The rate of voluntary Class 3 contributions increases to £14.65 per week for 2018/19.
The lower profits limit for Class 4 contributions increases to £8,424 for 2018/19 and the upper profits limit increases to £46,350. The main rate of Class 4 contributions remains at 9% and the additional rate remains at 2%.
If you would like any further advice or guidance on this, then please do not hesitate to get in touch with us.