The beginning of a new tax year invariably brings an update to the regulations around certain tax issues. This year, both businesses and individuals can expect to be affected by the changes that came in on 6 April 2018. Here is a brief summary of what’s happened and a few pointers on ensuring you make the most of your tax benefits.
Residential Nil Rate Band
The key change to affect individuals is the increase in the Residential Nil Rate Band (RNRB), which impacts inheritance tax planning. An extra allowance was introduced in 2017 to enable homeowners to use a tax-free sum against their main property. Subject to conditions – such as who the property is left to – individuals can use a further £125,000 against their main home, meaning that married couples could now pass on a total of £900,000 under the nil rate band.
Offshore trusts
Those with offshore trusts also have a significant change to consider. Previously, overseas trusts with UK beneficiaries could make what is regarded as indirect distributions to their beneficiaries as a way of avoiding tax consequences. This is no longer possible as of 6 April 2018.
The move was much contested, but has gone ahead, and trustees and beneficiaries are being advised to speak to their tax accountant before making onward gifts.
Dividends
The biggest change for businesses and investors is that the annual dividend allowance has been significantly reduced. Where £5,000 per annum was previously available to shareholders, only £2,000 can be given tax-free from 6 April 2018. Not only does this mean less benefit for shareholders – who may need to look at rebalancing their portfolios – but it also brings a potential increase in some companies’ tax bills to the tune of £1,143.
Mortgage interest relief
Landlords are also affected by the changes that came in on 6 April, although this change is part of a wider move, that began in 2017, to introduce a basic rate tax reduction on property instead of income tax relief on property finance costs. This year sees the relief drop from 75{32ca7afe7dee7544c8399175d2ef8534bc96e8dfec63ac1022e945a6adaba39c} to 50{32ca7afe7dee7544c8399175d2ef8534bc96e8dfec63ac1022e945a6adaba39c}, with the remaining 50{32ca7afe7dee7544c8399175d2ef8534bc96e8dfec63ac1022e945a6adaba39c} available as a basic tax rate reduction.
The government claims the new system will prevent more generous tax treatment being awarded to landlords with higher incomes. The next two tax years, therefore, will see further decreases to income tax relief on property finance costs.
Tax planning for the coming year
When undertaking personal financial planning for the coming year, there are two key things that many individuals can take note of. The first is the annual tax-free ISA allowance of £20,000. Anyone with an ISA can use this benefit to make the most of their investment.
The second pertains to inheritance tax. An annual sum of up to £3,000 can be gifted to a beneficiary without incurring tax charges. In addition, any number of £250 sums can be gifted tax-free to whomever the giver chooses.