Autumn Budget 2018
- By Julien Nurse
- November 5 2018
An overview of the personal tax proposals that may affect our clients
On Monday 29 October 2018, the Chancellor Philip Hammond presented his second Autumn Budget. This summary highlights some of the personal tax measures announced in the Budget that may affect our clients. If you have any questions or would like further information, please don’t hesitate to contact us.
The personal allowance
The personal allowance is currently £11,850. The personal allowance for 2019/20 will be £12,500.
There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000 and the threshold has remained at this figure since its introduction for the 2010/11 tax year. The reduction is £1 for every £2 of income above £100,000. So for 2018/19, there is no personal allowance where adjusted net income exceeds £123,700. For 2019/20, there will be no personal allowance available where adjusted net income exceeds £125,000.
Tax bands and rates
The basic rate of tax is currently 20%. The band of income taxable at this rate is £34,500 so that the threshold at which the 40% band applies is £46,350 for those who are entitled to the full personal allowance. Additional rate taxpayers pay tax at 45% on their income in excess of £150,000.
Tax bands and rates 2019/20
The government has announced that for 2019/20 the basic rate band will be increased to £37,500 so that the threshold at which the 40% band applies is £50,000 for those who are entitled to the full personal allowance. The additional rate of tax of 45% remains payable on taxable income above £150,000.
Tax on dividends
In 2018/19 the first £2,000 of dividends are chargeable to tax at 0% (the Dividend Allowance). The Dividend Allowance will remain at £2,000 for 2019/20. Dividends received above the allowance are taxed at the following rates:
- 5% for basic rate taxpayers
- 5% for higher rate taxpayers
- 1% for additional rate taxpayers.
Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance.
To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.
In 2017/18, the Dividend Allowance was £5,000. The reduction in the allowance particularly affects family company director-shareholders who extract monies from the company by means of a small salary and the balance in dividends. The cost of the restriction in the allowance for basic rate taxpayers is £225 increasing to £975 for higher rate taxpayers and £1,143 for additional rate taxpayers.
Tax on savings income
Savings income is income such as bank and building society interest.
The Savings Allowance, which was first introduced for the 2016/17 tax year, applies to savings income and the available allowance in a tax year depends on the individual’s marginal rate of income tax. Broadly, individuals taxed at up to the basic rate of tax have an allowance of £1,000. For higher rate taxpayers the allowance is £500. No allowance is due to additional rate taxpayers.
Some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. However, the rate is not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income less allocated allowances and reliefs) exceeds £5,000.
Here to help
As always, we’re here to help. If you’d like more information on how the Autumn Budget may affect you, or would like advice on how to optimise your tax arrangements to best serve your interests, we can provide the specialist advice you need. Simply contact us.