Lift off for the 2018/19 tax year

The new income tax rates and allowances came into effect as usual on 6 April, the start of the 2018/19 tax year.

Many tax allowances have increased. For example, the personal allowance has risen from £11,500 to £11,850. The capital gains tax annual exempt amount is now £11,700, up from £11,300 in 2017/18. However, the dividend allowance has been reduced to £2,000, down from £5,000, and this will especially hit director-shareholders who draw most of their remuneration as dividends.

Income tax differences

For England, Wales and Northern Ireland, the higher rate income tax threshold in 2018/19 is £46,350 (£45,000 in 2017/18). Scottish income tax payers have a different structure, with new starter (19%) and intermediate (21%) rates, along with a 41% higher rate tax on income from £43,430 to £150,000. The top rate for Scottish income over £150,000 is now 46%. Savings and dividend income is taxed in the same way as in the rest of the UK.

Directors and employees who drive company cars will also pay more tax. Most fuel benefit rates have increased by 2%, and the rate for electric cars and cars with CO2 emissions up to 50g/km have increased to 13% from 9%. The diesel supplement is now 4% for cars that do not meet the Real Driving Emissions Step 2 (RDE2) standards.

Hybrid cars or diesels that meet RDE2 don’t incur the diesel supplement. Employees who recharge their own electric or hybrid car at work will also no longer be taxed on the employer-provided electricity.

Inheritance tax and pensions

The inheritance tax residence nil rate band has risen to £125,000, and will rise to £175,000 over the next two years. This allowance covers property left to direct descendants, although it is tapered away for estates worth more than £2 million. The pension lifetime allowance has also been indexed to £1.03 million.

If you would like to discuss with us how you may be affected by the new rates please get in touch.