As a new tax year starts, everyone from savers, graduates, landlords to married couples will be affected
Another tax year has started and the ripples will be seen across pay cheques in the coming weeks.
6th April marked the first day of the new financial year and with it came changes that will affect income taxpayers, savers, married couples, recent graduates and buy-to-let landlords, among others.
So how will your pay packet and bank balances change over the next 12 months?
The most significant change for most people will be movements in the rates. The personal allowance has now moved from £11,500 to £11,850, while the basic rate band goes up from £33,500 to £34,500. “The bands for 2018/19 are 20% on taxable income up to £34,500, and 40% on income between £34,501 and £150,000,” according to an advice note from Deloitte.
Meanwhile in Scotland, a new income tax system has come into effect. A starter rate of 19% will apply to incomes of between £11,850 and £13,850; 20% between £13,850 and £24,000; 21% from £24,000 to £43,430; 41% between £43,430 and £150,000 and 46% on incomes over £150,000.
There will be significant changes to the amount of tax people pay on investments in companies.
Until last week, you could earn up to £5,000 on dividends without paying tax. This has decreased to £2,000. “Directors and employees of small businesses would have heard in last year’s budget that this tax year would bring changes to the tax-free dividend allowance.
“The rate of tax varies considerably depending on the individual’s tax band. Consumers would need to carefully check their yearly income and any dividends earned due to the fall in the allowance,” says Springall.
This could mean that investors may want to move their money to an ISA, says Quentin Holt from PwC.
Consumer group Which? calculated that if £10,000 in dividends were earned in a year, a basic-rate taxpayer would see their tax bill rise by £225, while a higher-rate taxpayer would pay a further £975.
Buy to let
Further restrictions on mortgage-interest relief on rental properties have made buy to let an increasingly difficult investment strategy.
At the beginning of last year, landlords could offset all mortgage interest payments against rental income but this was reduced to 75% in the 2017-18 tax year and is now down to 50%. It will be further reduced to 25% in 2019-20, and 0% in 2020-21. With many buy-to-let landlords on interest-only mortgages, these changes have drastically affected incomes.
“The phased approach to this change started last year but the new financial year will see the proportion of finance costs that can be deducted from rental income reduce from 75% to 50%, which mean an increased tax bill for many. Eventually, in 2020/21, landlords will only be able to claim basic-rate relief on mortgage interest so it’s important for investors to consider the impact on their overall figures,” explains David Hollingworth from London & Country Mortgages.
“Given that landlords will not have to submit a tax return for last year until January 2019, there is a risk that some will not have fully assessed how it will affect them.
“The change is also likely to see more landlords fall into the higher-rate taxpayer category. It’s important to take the onset of the new financial year as the trigger to run the figures if they haven’t already.”
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