Tax Changes – April 2018

Minimum & National Living Wage

Minimum Wage

• > 25 – £7.83
• 21 to 24 – £7.38;
• 18 to 20 year olds – £5.90
• Under 18 but over compulsory school age – £4.20
• Apprentices under 19 or in 1st year – £3.70

Increase in National Living Wage for those over 25 from £7.50 to £7.83 from 1 April 2018

Work Place Pension Contributions

1 April 2018 contributions to the workplace pension (commonly referred to as auto enrolment), increased to 5% of qualifying earnings.

2% of the 5% must be paid by the employer.

In April 2019 this rises again to of 8% qualifying earnings of which at least 3% must be paid by the employer.  Employers should start cash flow modelling for the increase.

Personal Allowance

The tax free personal allowance has increased from £11,500 to £11,850, resulting in a basic rate taxpayer being £70 better off in the tax year.  If a spouse personal allowance is not being fully utilised then planning options should be considered.

The personal allowance goes down by £1 for every £2 that your adjusted net income is above £100,000, so your allowance would be zero if your income hits £123,700.

Higher Rate Tax Threshold

The level at which the 40% rate of income tax applies increases from £45,001 to £46,351.

Dividend Allowance

The dividend allowance (amount of dividend income that can be earned tax free), is reduced from £5,000 to £2,000.

Marriage Allowance

Increases from £1,150 to £1,185.

Capital Gains Tax Exemption

Increases from £11,300 to £11,700 per individual.

Buy to Let Landlords

The restrictions on the treatment of mortgage interest on residential property lettings increase for 2018/19. Only 50% of any interest paid will be fully deductible from rental income; relief for the other 50% will be given as a basic rate tax reducer. (The proportions were 75% and 25% in 2017/18) Higher and additional rate taxpayers will see an increased tax liability on their rental profits.

Main Residence nil-rate band for inheritance tax

Rises from £100,000 to £125,000, this makes the total tax-free threshold of £450,000 per person or £900,000 for a couple.

Student Loan Repayment Threshold

The level at which students will start to repay their student loan will increase from £21,000 to £25,000.

Vehicle Exercise Duty – Car Tax

From 1 April 2018 the first-year VED tax rate for new diesel cars increased by one band. In addition, the company car tax levied on diesel cars will increase from 3% to 4%.

The rules only apply to cars, not vans or commercial vehicles, and the extra cost is only payable for models that don’t meet the latest Euro 6 emissions standards.  (At present, no new diesels conform to the RDE standards, so the extra fee will apply to all new diesels sold).

New VED rates:

* Rate applies to diesel vehicles registered from 01 April 2018 that do not meet the RDE2 standard.
** Standard rate applies from year two onwards to cars with a list price up to but not including £40,000.
*** Premium rate applies from year two to year six to cars with a list price of £40,000 or more.
Sources: Budget 2018, DVLA 2018.

Some Other Changes:

• Scottish income tax rates will diverge from the rest of the UK, with the introduction of five bands, instead of three, ranging from 19% to 46%.
• Stamp duty land tax (the tax paid on the acquisition of a property or land), will be replaced in Wales with a land transaction tax. Rates will between 0% and 12%.  (Scotland already has its own property tax system).
• Sugar tax – Manufacturers will be taxed according to the quantity of the sugar-sweetened drinks they produce or import. This tax cost is likely to be passed on to the consumer via price increases by manufacturers who don’t look to reduce sugar levels in their products.