Budget Update – Year to 5 April 2021

From 6 April 2020, the thresholds will change to the amounts set out below (this does not include rates in Scotland).

                                                          2021              2020

Personal allowance                             £12,500           £12,500

National Insurance (PT)                     £9,500              £8,632

Higher rate threshold 40% tax         £50,000           £50,000

Marriage allowance                             £1,250              £1,250

 

Limited company shareholders:

Dividend allowance                              £2,000               £2,000

The dividend allowance is particularly important to owner managed businesses. The allowance of £2,000 for the year to 5 April 2021 is set at a rate of 0%, meaning any dividend income in the year up to £2,000, will be taxed at 0%.

Corporation tax is set to remain at 19% (the same as for the year to 31 March 2020).

 

Self-employed:

Class 4 National Insurance                        9%                   9%

Rates for taxable profits

over £9,500 up to                                        £50,000          £50,000 (over £8,632.00)

Class 2 National Insurance                       £158.60         £156.00

 

Employment Allowance:

The employment allowance is set to increase from £3,000 per year to £4,000 from 6 April 2020. The employment allowance cannot be claimed in company’s with only one director. There is more information on the employment allowance here.

 

Capital Gains Tax (for individuals):

Annual exemption                                      £12,300       £12,000

 

VAT Threshold

The taxable turnover threshold which determines whether a business or person must be registered for VAT, will remain at £85,000.

The taxable turnover threshold which determines whether a business or person may apply for deregistration will remain at £83,000.

 

Reporting Capital Gains:

From 6 April 2020, if you’re a UK resident and sell a residential property in the UK that is not your main residence, you’ll have 30 days to tell HMRC and pay any Capital Gains Tax owed. There is more information on this here.

 

IR35 off-Payroll Changes:

The Government has announced that planned changes to come in from 6 April 2020 for contractors have been delayed by one year. IR35 reforms have already come in for public sector bodies and was due to be introduced to the private sector for medium and large sized businesses. It has been announced that this change will be delayed by one year to 6 April 2021. There is more information on the changes here.

 

Trading and Property Allowances

From 6 April 2017, there was a new £1,000 Trading Allowance and £1,000 Property Allowance available to use against trading income and rental income. Although the allowance is designed to be straightforward, as ever, there is always some detail in the rules that is worth considering.

Trading Allowance

The trading allowance can be used against self employment income from 6 April 2017. Here some important points to consider with the allowance;

  • If your total self employment income before expenses in the year is £1,000 or less, you may not be required to submit a tax return.
  • You will have the option of claiming the trading allowance or claiming expenses in the year. It may be more beneficial to claim expenses where allowable expenditure is more than £1,000.
  • The trading allowance cannot be used to create a loss, whereas if you claim expenses in the year, this can create a loss, from which it might be possible to get tax relief.

Property Allowance

The property allowance works in a similar way to the trading allowance. It can be used against rental income when renting out a property that is not your own home/residence.

You cannot use either allowance against;

You can’t use the allowances in a tax year if you have any trade or property income from:

  • a company you or someone connected to you owns or controls
  • a partnership where you or someone connected to you are partners
  • your employer or the employer of your spouse or civil partner

You can’t use the property allowance if you:

 

New Tax Year Update

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

Budget Update – Year to 5 April 2019

From 6 April 2018, the thresholds will change to the amounts set out below (this does not include rates in Scotland).

                                                     2019               2018

Personal allowance                             £11,850           £11,500

National Insurance (PT)                     £8,424              £8,164

Higher rate threshold 40% tax         £46,350           £45,000

Marriage allowance                             £1,185              £1,150

 

Limited company shareholders:

Dividend allowance                              £2,000               £5,000

The dividend allowance is particularly important to owner managed businesses. The allowance of £2,000 for the year to 5 April 2019 is set at a rate of 0%, meaning any dividend income in the year up to £2,000, will be taxed at 0%.

Corporation tax is set to remain at 19% (the same as for the year to 31 March 2018).

 

Self-employed:

There were discussions around raising the rate of National Insurance on Self-employed profits. Class 4 National Insurance is set to remain the same for the year to 5 April 2019.

Class 4 National Insurance                        9%                   9%

Rates for taxable profits

over £8,424 up to                                    £46,350          £45,000

Class 2 National Insurance                      £153.40         £148.20

 

Capital Gains Tax (for individuals):

Annual exemption                                     £11,700       £11,300