The essential Your Money guide to the April 2018 tax changes
Council Tax: Local councils in England have been given the authority to raise council tax by up to 5.99%, adding more than £100 to the average property’s bill in April.
Personal Allowance: The amount of money you can earn before you start paying income tax will rise with inflation from the current level of £11,500 to £11,850.
Higher rate threshold: For higher rate taxpayers, the threshold will rise from £45,000 to £46,350 in the new tax year. The government has already committed to raising the higher rate threshold to £50,000 by 2020.
Prescriptions: The cost of a prescription will increase by 20p from £8.60 to £8.80 for each medicine or appliance dispensed from 1 April.
Minimum wages: The National Living Wage (NLW) currently stands at £7.50 an hour, but this will rise 4.4% to £7.83 from April, benefitting over two million people and adding £600 to annual incomes for full-time workers.
The National Minimum Wage (NMW) for those aged under 25 will also rise:
- 21-24-year-olds: £7.38 per hour (up from £7.05 per hour)
- 18-20-year-olds: £5.90 per hour (up from £5.60 per hour)
- 16 and 17-year-olds: £4.20 per hour (up from £4.05 per hour)
- Apprentices (aged under 19 or in the first year of their apprenticeship): £3.70 per hour (up from £3.50 per hour).
Dividend Allowance: The tax-free Dividend Allowance will be cut from £5,000 to £2,000 in the new 2018/19 tax year.
The measure will affect employees and directors of small businesses who might remunerate themselves partly or wholly through dividends rather than salary.
It could also hurt investors with dividend generating shares and funds held outside ISAs and pensions.
Any dividend income above the current £5,000 allowance is taxed at the following rates:
- Basic rate taxpayer – 7.5%
- Higher rate taxpayer – 32.5%
- Additional rate taxpayers and trustees – 38.1%.
Capital Gains Tax: CGT is charged on the profits made when certain assets are sold or transferred. If all gains in a tax year fall within the annual CGT allowance (£11,300 for 2017/18, £11,700 for 2018/19) there is no tax to pay.
Auto-enrolment contributions: The auto-enrolment contribution rates for both employees and employers are due to rise in the new April tax year. Currently, the minimum pension contribution rate is 1% from the employee and 1% from the employer, giving a 2% total contribution. But from 6 April, the contributions will rise to 5%, made up of 3% from the employee and 2% from the employer.
The State Pension: Both the new flat rate State Pension and the old basic State Pension will rise by 3%. This means those on the flat rate State Pension will see weekly earnings rise from £159.55 per week to £164.35 per week (£8,546.20 a year). Those on the basic State Pension will get £125.95, up from £122.30 per week.
Lifetime Allowance: The Lifetime Allowance (LTA) is the maximum amount of pension savings you can build up without a tax charge. It currently stands at £1m but will rise to £1,03m in April – the first increase since 2006.
Marriage Allowance: The Marriage Allowance lets an individual who earns less than the Personal Allowance to transfer 10% of the allowance to their partner. This boosts the receiving partner’s Personal Allowance, meaning they can earn more before they start to pay tax. In the new tax year, married couples and civil partners may be eligible for a £237 tax break, but claims can also be backdated for four tax years (2015/16).
Childcare Vouchers: The Tax-free childcare scheme is replacing the Childcare Voucher scheme. Parents who are already members of a Childcare Voucher system should be able to continue to use it, as long as their employer is still providing access. Update 15 March: The scheme was set to close on 5 April meaning new members weren’t able to join the Childcare Voucher scheme. However, the government has announced a six month extension to this deadline. A final date in October has yet to be set, however.
Funeral payments: From 2 April, a number of changes to the Social Fund Funeral Expenses Payments scheme come into effect, including enabling claimants to receive contributions from charities, relatives or friends without them being deducted from the overall sum payable toward funeral costs.
Also, claimants will have six months from the funeral date in which to make an application for help with funeral costs instead of the current three months. They will also have the option of submitting any evidence needed in support of their claim electronically.
Junior ISA: The Junior ISA (JISA) limit will increase from 6 April from £4,128 to £4,260.
Death and ISA rules: A surviving spouse can inherit a one-off additional ISA allowance equivalent to the value of the deceased’s ISA at the time of death. But if the money goes to someone other than the spouse, it may be subject to Inheritance Tax (IHT) as part of the deceased’s estate. During probate, any growth will also be subject to tax.
But from 6 April, all ISAs, apart from the JISA will become a ‘continuing account of a deceased investor’. Money can’t be paid in, but it will continue to benefit from the tax advantages of an ISA.
Energy Performance Certificates: As of 1 April, all buildings within the scope of Minimum Energy Efficiency Standards (MEES) must have a minimum Energy Performance Certificate (EPC) rating of E, or they will be illegal to rent out. Landlords face fines of up to £4,000 if they don’t meet the grade.
Residence nil rate band: The current inheritance tax nil-rate band is £325,000 but married couples and civil partners can pass this on to the surviving spouse meaning there’s no IHT to pay on the first £650,000. But spouses also get an extra allowance – the residence nil rate band – of £125,000 in the 2018/19 tax year where a main residence is passed to a direct descendant.
Mortgage interest: Last year, landlords could deduct their full mortgage interest costs from their income when calculating their tax bill. Now, landlords are only able to offset 75% of their mortgage interest. In the 2018/19 tax year, this figure will drop to 50%.