16th April 2018 at 1:25pm
With the tax year 2018-19 having started on 6 April 2018, here’s our quick guide to the main changes affecting your income and savings.
The personal tax-free allowance is up
The good news is that your income up to £11,850 is free of tax, up slightly from last year’s £11,500.
Your personal allowance starts to shrink when your taxable earnings reach £100,000. Earn more than £123,700 and you don’t get a personal allowance.
UK income tax (except Scotland)
If you live in England, Wales or Northern Ireland, you’ll pay slightly less tax as tax bands edge up. Tax rates stay the same at 20%, 40% and 45% – that’s 20p, 40p or 45p tax for every pound.
Basic tax rate: 20% on annual earnings above your personal allowance, from £11,850 to £46,350.
Higher tax rate: 40% on annual earnings in the £46,351 to £150,000 range.
Additional tax rate: 45% on annual earnings above £150,000.
Things are now different for those who live in Scotland.
Scotland income tax
There were some important changes to income tax in Scotland, with the devolved Government changing tax bands and rates to raise revenue. It means some people will pay more while those on lower-incomes will pay less.
If you live in Scotland, your personal allowance is the same as elsewhere in the UK but there are now five tax income bands and rates for earnings, pension and rental income. Tax on savings and investments isn’t devolved, so Scottish taxpayers will pay the same as the rest of the UK rates on this income.
Scottish starter tax rate: 19% on earnings over and above the personal allowance, from £11,850 up to £13,850.
Scottish basic tax rate: 20% on earnings from £13,851 to £24,000.
Scottish Intermediate tax rate: 21% on the £24,001 to £43,430 range.
Scottish higher tax rate: 41% on earnings from £43,431 to £150,000.
Scottish top tax rate: 46% on earnings of £150,000+.
Paying into a pension? Your 2018-19 lifetime and annual allowances
With the start of a new tax year, you can pay up to 100% of your ‘earnings’, limited to £40,000, tax-free into your pension as your annual allowance. If you have an annual income of over £150,000, this annual allowance starts to reduce. There are rules that could allow you to save more but if you’re unsure how much you could save into a pension, it’s best to get support from your adviser or accountant.
In a positive move for those building up larger pension savings, the lifetime allowance – how much you can contribute into pensions over your lifetime without needing to pay the lifetime allowance tax charge – is up in line with inflation to £1,030,000, from £1,000,000. The lifetime allowance is due to rise each year with inflation, although Government plans can change.
Tax-free savings: ISA savings allowance is still £20,000
Again, the start of the new tax year means allowances reset, giving you the opportunity to save up to a further £20,000 to your ISA.
The dividend allowance has been cut
You won’t have to pay tax on the first £2,000 of your dividend income, regardless of any other income you have. This is down from £5,000.
Capital Gains Tax allowance up
If you have investments in mutual funds, the amount of growth you can take tax-free each year has increased to £11,700, up from £11,300.
National Insurance (NI) rate changes
There is a small change to how much you need to earn before you pay NI, giving many people a small boost to their take-home pay. There’s no NI payable up to £8,424, and you then pay 12% when your earnings reach that point, a nudge up from £8,164.
When you earn above £46,350, you start to pay an extra 2% NI on your earnings.
If you’re self-employed your rates differ and can be more complicated. HMRC has more details.
Last but not least, why not make the most of your tax plans and allowances by using your ISA and pension allowances early in the tax year?
That gives your savings more time to grow tax-free, with the minimum effort from you.
The value of investments can go down as well as up and may be worth less than was paid in.
Laws and tax rules may change in the future. The information here is based on our understanding in April 2018 and shouldn’t be taken as financial advice. Personal circumstances also have an impact on tax treatment.