Last year, HMRC collected £28bn more in tax between April 2018 and Feb 2019 (according to its own data collection reports). This mostly came from Income Tax (IT), National Insurance contributions (NI) and Capital Gains Tax (CGT).
In addition, VAT collected rose by £6.4bn, while income from Corporation Tax added another £2.4bn. As the new tax year gets underway, we thought you might like a round-up of some of the changes that are likely to affect your tax position moving forward.
ALLOWANCES AND TAX RATES
– The personal allowance for 2019/20 has risen by £650 to £12,500. – The tax free dividend allowance for 2019/20 is £2,000.
– Now, you’ll pay basic rate tax of 20% (or 7.5% for dividends) on taxable income between £12,500 and £50,000 which means that any income over and above £50,000 will be subject to tax at a rate of 40% (32.5% on dividends).
– If you earn £100,000 or more, your tax free personal allowance falls by £1 for every £2 you earn over £100,000. This basically means that the effective tax rate for income between £100,000 and £125,000 is 60%!
– Taxable Income in excess of £150,000, is taxed at the additional rate of 45% (38.1% on dividends)
– If you are self-employed and your taxable profits exceed £6,365 for the year, you will need to pay Class 2 NI contributions at a flat rate of £3 per week (collected via self assessment).
– In addition, if your self-employed profits exceed £8,632 for the year, you need to pay Class 4 NI contributions at a rate of 9% on any amounts over and above this allowance.
– To the extent that any self employment profits exceed £50,000, Class 4 NIC will be payable at a reduced rate of 2%.
– When it comes to Capital Gains Tax, the annual exemption for 2019/20 is £12,000. This means that you can sell assets such as land, property and shares etc and you will only be subject to tax to the extent that the gain you have made on the asset exceeds £12,000.
– The rates at which you pay capital gains tax range from 10% to 28% subject to the type of asset sold and the taxpayers personal income position. OTHER CHANGES
– As of 6 April 2019, non-UK tax residents must report and pay CGT on residential AND commercial property disposals within 30 days of the date of disposal. Previously, non-residents were only required to report and pay tax on direct disposals of residential properties only.
– Foreign investors are now also subject to CGT on disposals of all UK residential and commercial land, held directly or through “property rich” holding vehicles, such as a company.
– From 6 April 2019 the Welsh Government are able to vary the rates of income tax paid by Welsh taxpayers. The rates and allowances for 2019/20 are the same as those for England and NI but moving forward Welsh resident taxpayers should be conscious of any potential rate changes.
– From 6 April 2020, UK taxpayers will need to report and pay CGT on all property disposals within 30 days of the date of disposal (rather than the current deadline of 31 January following the end of the tax year in which the sale is made).
– Provided that the owner of a UK residential property has used that property as their main residence at some stage during ownership, Principal Private Residence relief (PPR relief) is available to reduce the gain arising on sale. Currently, all property owners to which this applies can claim relief for gains realised in the last 18 months of ownership. However, this period will reduce to 9 months as of 6 April 2020. It should however be noted that this change will not affect the 36 month final period exemption available to those who are disabled or in a care home.
– An additional relief known as ‘Letting Relief’ is also available where a former main residence has been rented out during a period of absence which does not qualify for PPR relief (perhaps whilst trying to sell the property). This can provide an additional reduction of up to £40,000 on any gain potentially subject to CGT.
– From 6 April 2020, Letting Relief will only be available for periods where both the owner and the tenant shared occupancy of the property.
– Property owners may therefore consider selling their property before the change comes into force to preserve their entitlement to these additional reliefs. So, what can you do? The tax legislation and landscape is forever changing and it is therefore always prudent to seek expert tax planning advice from an accountant; and to review your personal position at least once a year. Personal circumstances often change and by carrying out regular ‘housekeeping’ on your tax affairs, it is likely that the best use can be made of legitimate tax allowances and reliefs.
If you would like to talk to one of our Cheshire tax experts, please email Chris.Regnauld@affordbond.com or complete the Contact Us form on our website.