The Autumn Budget 2018 – changes to personal tax
Below you will find our summary on all changes made to Personal Tax as a result of the Autumn Budget in 2018. For an overview of the Autumn Budget, please click here.
The personal allowance
The personal allowance is currently £11,850. The personal allowance for 2019/20 will be £12,500.
The marriage allowance
The marriage allowance permits certain couples, where neither pays tax at more than the basic rate, to transfer 10% of their personal allowance to their spouse or civil partner.
Tax bands and rates
The basic rate of tax is currently 20%. The band of income taxable at this rate is £34,500 so that the threshold at which the 40% band applies
is £46,350 for those who are entitled to the full personal allowance. Additional rate taxpayers pay tax at 45% on their income in excess of £150,000.
The tax on income (other than savings and dividend income) is different for taxpayers who are resident in Scotland to taxpayers resident elsewhere in the UK. The Scottish income tax rates and bands apply to income such as employment income, self-employed trade profits and property income.
In the 2018/19 Scottish Budget, the Finance Secretary for Scotland introduced five income tax rates as shown in the table of rates at the end of this summary. The income tax rates range between 19% and 46%. Scottish taxpayers are entitled to the same personal allowance as individuals in the rest of the UK.
Tax bands and rates 2019/20
The government has announced that for 2019/20 the basic rate band will be increased to £37,500 so that the threshold at which the 40% band applies is £50,000 for those who are entitled to the full personal allowance. The additional rate of tax of 45% remains payable on taxable income above £150,000.
From April 2019, the Welsh Government has the right to vary the rates of income tax payable by Welsh taxpayers. The UK government will reduce each of the three rates of income tax paid by Welsh taxpayers by 10 pence. The Welsh Government has provisionally set the Welsh rate of income tax at 10 pence which will be added to the reduced UK rates. This means the rates of income tax paid by Welsh taxpayers will continue to be the same as those paid by English and Northern Irish taxpayers. The Welsh Government will need to confirm this proposal prior to their final Budget.
The Scottish Government will announce the Scottish income tax rates and bands for 2019/20 in the Draft Budget on 12 December 2018.
Tax on dividends
In 2018/19 the first £2,000 of dividends are chargeable to tax at 0% (the Dividend Allowance). The Dividend Allowance will remain at £2,000 for 2019/20. Dividends received above the allowance are taxed at the following rates:
- 7.5% for basic rate taxpayers
- 32.5% for higher rate taxpayers
- 38.1% for additional rate taxpayers.
Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance.
To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.
The Savings Allowance, which was first introduced for the 2016/17 tax year, applies to savings income and the available allowance in a tax year depends on the individual’s marginal rate of income tax. Broadly, individuals taxed at up to the basic rate of tax have an allowance of £1,000. For higher rate taxpayers the allowance is £500. No allowance is due to additional rate taxpayers.
Some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. However, the rate is not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income less allocated allowances and reliefs) exceeds £5,000.
Rent-a-room relief gives relief from income tax for up to £7,500 of income to individuals who let furnished accommodation in their only or main residence. Following consultation on the draft legislation and to maintain the simplicity of the system, the government will not include legislation for the shared occupancy test. The government will retain the existing qualifying test of letting in a main or only residence.
Gift Aid – donor benefits
Draft legislation has been issued which simplifies the donor benefits rules that apply to charities who claim Gift Aid tax relief on donations. From 6 April 2019 the benefit threshold for the first £100 of the donation will remain at 25% of that amount. For gifts exceeding £100, charities can offer benefits up to the sum of £25 and 5% of the amount of the donation that exceeds £100. The total value of the benefit that a donor can receive remains at £2,500.
Gift Aid Small Donations Scheme
The Gift Aid Small Donations Scheme (GASDS) applies to small charitable donations where it is impractical to obtain a Gift Aid declaration. GASDS currently applies to donations of £20 or less made by individuals in cash or contactless payment. The limit will be raised to £30 from 6 April 2019.
National Living Wage (NLW) and National Minimum Wage (NMW)
Following the recommendations of the independent Low Pay Commission (LPC), the government will increase the NLW by 4.9% from £7.83 to £8.21 from April 2019.
The government will also accept all of the LPC’s recommendations for the other NMW rates to apply from April 2019, including increasing the rates for:
- 21 to 24 year olds by 4.3% from £7.38 to £7.70 per hour
- 18 to 20 year olds by 4.2% from £5.90 to £6.15 per hour
- 16 to 17 year olds by 3.6% from £4.20 to £4.35 per hour
- Apprentices by 5.4% from £3.70 to £3.90 per hour.
The government has announced that the amount that households with children and people with disabilities can earn before their Universal Credit award begins to be withdrawn – the Work Allowance – will be increased by £1,000 from April 2019.
In addition the government has listened to representations made by stakeholders on Universal Credit, and has announced a package of extra support for claimants as they make the transition to Universal Credit.
Click here to return to an overview of the Autumn Budget