This article first appeared in the Staffordshire Newsletter as a guest column written by Rebecca Nott Senior Manager.
Before I begin, don’t forget everyone, the deadline for online tax returns is midnight on 31 January. If you miss it you could incur a fine.
Now, it seems an age since the Chancellor Philip Hammond delivered his much awaited Budget speech. In fact, it was only seven weeks ago but who can honestly say that they remember what the key points were and what impact they will have?
Ignoring the changes that won’t take effect until sometime in the future, here is a handy summary of the main announcements:
- With immediate effect, stamp duty no longer applies for first-time buyers on homes costing up to £300,000 or on the first £300,000 of first-time buyer’s homes costing up to £500,000
- The personal tax-free allowance has gone up from £11,500 to £11,850, with the 40% tax band starting at £46,350 instead of £45,000 (these figures and rates don’t apply in Scotland, of course, as we heard recently)
- From 6 April 2018, National Insurance Contributions (NIC) thresholds for employers and employees will rise from £157 to £162 per week (£8,424 per year). The upper earnings limit will also increase to £892 per week (£46,384 per year) in line with the threshold for 40% income tax
- The much debated abolition of Class 2 NICs and reform of Class 4 NIC for self-employed people was deferred by a year to April 2019
- The VAT registration threshold for businesses was frozen at £85,000 for two years instead of having the usual £2,000 increase. There had been speculation that this threshold might be reduced
- The amount where annual Capital Gains Tax is exempt went from £11,300 to £11,700
- The indexation allowance, which gives companies relief for the effect of inflation on capital gains, will be frozen from January 2018
- The dividend allowance (the amount up to which no tax is paid on dividends) will be reduced from £5,000 to £2,000 for 2018/19, raising nearly £1bn a year by the end of this Parliament
So do the tax changes mean that people will be better off? On a salary of £46,350, the income tax payable will be £340 less in 2018/19 than in 2017/18. However, the upper limit for 12% National Insurance also increases, meaning there will be an extra employee’s NIC bill of about £100 to offset the tax reduction. Better off… but not by much.
Other important changes include:
- 10% of marriage allowance tax relief can now be claimed by a spouse or partner from their loved one’s allowance even after they have passed away (and it can be backdated by up to four years)
- Without going through all the figures, it now costs more to have a company car – and especially one that runs on diesel. However, from 6 April 2018, there will be no income tax or National Insurance on the benefit provided to an employee who is allowed to charge an electric car at the workplace
- Corporation tax went down to 19% in April 2017; by April 2020 it will be 17%
- From 6 April 2018, employees with Save-As-You-Earn related share option schemes will be able to pause their contributions while on maternity or paternity leave for up to 12 months (instead of six months)
- The ISA limit of £20,000 per year will not change for 2018/19 and the limit for a Lifetime ISA will also remain at £4,000. The limit for Junior ISAs and Child Trust Funds will increase from £4,128 to £4,260
- Likewise, the limit on contributions to tax-advantaged pension schemes remains at £40,000 a year for those with income up to £150,000 and the limit goes down to £10,000 for those earning £210,000
Finally, the inheritance tax (IHT) changes are potentially mind-boggling. Where a taxpayer’s residence is left to direct descendants, the IHT nil rate band remains frozen at £325,000 until the end of 2020/21 but there is now a ‘residential enhancement’ that applies a second nil rate band (£125,000 from 6 April 2018 and rising to £175,000 by 2020/21). So a married couple could leave £1m free of IHT to their descendants (£325,000 plus £175,000 from each parent), but the rules are so complex that many people will struggle to understand them.
Of course, these are by no means all the changes that the Chancellor announced but they’re enough to be worrying ourselves over for the time being. If you’re still confused we’ve produced a handy Budget guide that explains all the changes and the impact they will have. Just call us on 01785 243276 and ask for your copy.