As the 2019 tax year begins, the thresholds, rates, and allowances will change from 6 April 2018. Details of the allowances and thresholds can be found here.
Dividend Tax
The dividend tax was introduced from 6 April 2016, which is a major change in the way that dividend income is taxed. The dividend allowance was set at £5,000 for the years ending 5 April 2017 and 5 April 2018. The threshold means that any dividends received in the tax year up to the threshold, are taxed at 0%. Any dividends received in the tax year over £5,000, would be taxable at the applicable marginal rates set out below.
| Tax band | Tax rate on dividends over £5,000 |
|---|---|
| Basic rate | 7.5% |
| Higher rate | 32.5% |
| Additional rate | 38.1% |
From 6 April 2018, this allowance is set to reduce to £2,000 a year. Depending on your other taxable income in the year, this will mean that any individuals that receive dividend income over £2,000, will likely have higher personal tax liabilities. For example, if your total taxable income for the year to 5 April 2019 is within the basic rate band and you receive dividend income over £2,000, then the tax increase could equate to £3,000 x 7.5% = £225.
Corporation Tax Rates
Corporation tax rates reduced from 20% to 19% for all companies from 1 April 2017. If your company year does not run to 31st March, the corporation tax charge will be apportioned between the two rates e.g. if your year end is 30 September 2017, then the profit will be apportioned to the two rates for the period to 31 March 2017 and the period to 30 September 2017.
Mortgage Interest Relief Changes
The changes to the way in which mortgage interest relief is calculated, came in to effect from 6 April 2017. These changes are being phased in over four years to 5 April 2021, as set out below;
- in 2017 to 2018 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
- in 2018 to 2019, 50% finance costs deduction and 50% given as a basic rate tax reduction
- in 2019 to 2020, 25% finance costs deduction and 75% given as a basic rate tax reduction
- from 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction
The changes mean that any mortgage interest payments made in the tax year, are only partially included in the calculation of rental profits (75% of mortgage interest in the year to 5 April 2018) and then a separate tax reducer is included for the remaining mortgage interest at basic rate tax, which will be calculated at 20% of the lower of:
- finance costs (for example 25% of mortgage interest payments in the year for the year to 5 April 2018)
- property profits excluding any mortgage interest payments in the year
- adjusted total income (exceeding Personal Allowance)
The changes could mean that a larger amount of any rental income is taxed than it would have been previously. It could also lead to higher rate tax being due on the rental income, depending on your total taxable income.
Stamp Duty Land Tax
The additional rates for stamp duty that were introduced for purchases of an additional property, were set at 3% above the normal stamp duty rates.
There has also been the introduction of first time buyer rate for stamp duty, which came in from 22 November 2017. The rates are set lower than the standard stamp duty rates, to help first time buyers get on the property ladder. These rates are only available if;
- You are purchasing your first property to be your main residence
- You are purchasing a single dwelling
- The property is purchased for £500,000 or less
- A company will not be entitled to claim this relief
- A purchaser must not, either alone or with others, have previously acquired a major interest in a dwelling or an equivalent interest in land situated anywhere in the world. This includes previous acquisitions by inheritance or gift, or by a financial institution on behalf of a person under an alternative finance scheme
More guidance on the relief can be found here.
If you have any questions about any of the tax changes, please feel free to contact us.
Brighton & Hove Accountants - Wood & Associates LLP 