Tax changes in April 2018

There are a raft of changes to taxation coming into effect from 6th April 2018. 

Some of the changes are complex and could have both a negative and positive effect on your personal financial planning.

1. PERSONAL ALLOWANCE increases to £11,850 before paying income tax.
   You will now be able to earn £11,850 before paying tax.
2. HIGHER RATE TAX ALLOWANCE INCREASES to £46,350.
   The threshold at which you start paying 40% tax will be £46,350 (which includes your personal allowance of £11,850).
   By making extra pension contributions, you could bring your income below the higher-rate tax threshold and maintain your tax at the standard rate. This would benefit your pension contribution with a 40% tax relief.
3. MARRIAGE ALLOWANCE INCREASE from £1,150 to £1,185.
   Couples may transfer this portion of their personal allowance from the lower earner to the higher earner in order to save tax.
4. STATE PENSION will rise by 3%.
   This is in line with the September 2017 inflation rate. For those on the full 'flat rate' this means an additional £4.80 per week or £249.60 per annum.
5. PENSIONS LIFETIME ALLOWANCE will increase to £1.03 million.
   As with the state pension increase the lifetime allowance will have a 3% increase. Having a pension fund of more than this amount will mean higher taxes when you draw down your pension.
6. JUNIOR ISA ALLOWANCE INCREASES to £4,260.
   The junior ISA allowance will have a 3% increase (in line with inflation) from £4,128. Cash and investment ISAs allowance did not increase and remains at £20,000.
7. COMBINED EMPLOYER AND EMPLOYEE AUTO-ENROLMENT CONTRIBUTIONS INCREASES to 5%.
   From 6^th April 2018, the minimum contributions will rise to 2% coming from your employer and 3% from you.
8. SPECIAL INHERITANCE TAX ALLOWANCE INCREASES to £125,000
   Providing their property is passed to direct descendants the special allowance is now increased to £125,000. Combined with the existing nil-rate band of £325,000 means an individual can now pass on £450,000 per person (£900,000 per couple) without paying inheritance tax. 
   
   
9. DIVIDEND ALLOWANCE DECREASING to £2,000
   The dividend allowance will decrease from £5,000 to £2,000. This makes it even more important to have all your investments in an ISA, which is completely free of dividend tax.
   
   
10. BUY-TO-LET MORTGAGE RELIEF lowered to 50%.
    Only 50% of your buy-to-let mortgage payments will be deductible as a business expense. This is making buy-to-let properties an even more unattractive investment proposition.

If you would like greater insight into how these changes could affect your investments, pensions and personal financial planning then as independent financial advisers we would be happy to help you.

Please call us on our Freefone number 0800 193 1066 or click on the investment query button.