Key 2018/19 tax and other changes
April will still see a raft of tax and other changes, some of which date back to the pre-election 2017 Spring Budget. However, the Chancellor did not introduce any new tax measures in his Spring Statement, although he did announce no less than 13 consultations.
Income tax: UK
The income tax allowances and bands were increased in line with statutory indexation in the November 2017 Budget. For 2018/19, the personal allowance rises by 3% to £11,850 and the basic rate band increases by the same percentage to £34,500 (outside Scotland), making the higher rate threshold (the sum of the two) £46,350.
The one tax allowance that will fall in 2018/19 is the dividend tax allowance. This has been £5,000, but will reduce to £2,000 for the coming tax year and could mean extra tax of up to £1,143 on dividend income in 2018/19.
Income tax: Scotland
The same income tax allowances will apply throughout the UK, but there will be differences in some of the tax bands and rates. In Scotland, a different set of rates and bands will apply to non-savings, non-dividend income – primarily earnings.
For 2018/19, Scotland will have five tax bands with rates ranging from 19% to 46%. The higher rate of income tax will be 41%, not 40%, and the threshold at which it starts will be £43,430 – £2,920 below the rest of the UK. For someone with earnings of £50,000 a year, that means an extra tax charge of £824 a year for being resident north of the border.
National insurance contributions
The national insurance contributions (NICs) thresholds will also be increased by 3%. The upper earnings limit (for employees) and upper profits limit (for the self-employed) will rise to £46,350, matching the UK higher rate income tax threshold. Class 2 NICs, which were originally intended to end in April, will survive for 2018/19 (at £2.95 a week) before disappearing for 2019/20.
Company cars
Company car tax will rise for all but the highest emission vehicles from 6 April. The taxable cash equivalents will increase as follows:
- Cars with CO2 emissions of up to 50 g/km will see a 4% increase (from 9% to 13%). Cars with emissions between 51 and 75 g/km will increase by 3% (from 13% to 16%).
- Charges for cars with CO2 emissions above 75 g/km will rise by 2%, subject to the current ceiling of 37% of list price for all vehicles.
- The diesel surcharge will increase by 1% to 4% for diesel cars that do not meet the RDE2 emission standard (which in 2018/19 means almost every diesel car on the road).
While the increases look small, the cumulative effect can be substantial. For example, in 2017/18 the taxable benefit for a Mercedes C300h SE Auto (P11D value £36,595, CO2 94 g/km) is £7,319. In 2018/19 the taxable benefit rises to £8,417.
Inheritance tax (IHT)
The residence nil rate band, which was introduced in the current tax year, will rise by £25,000 to £125,000 in 2018/19. The main nil rate band will remain at £325,000 at the level set in 2009.
In the longer term, changes may be coming to IHT. In January 2018, Mr Hammond asked the Office of Tax Simplification (OTS) to, ‘carry out a review of the IHT regime’. The OTS will focus on simplification of the ‘particularly complex’ system and will issue its report in time for the Autumn Budget.
Automatic pensions enrolment
The minimum contribution levels for workplace pensions operating under automatic enrolment provisions will rise from 6 April 2018:
|
2017/18 |
2018/19 |
Employer minimum contribution |
1% of band earnings |
2% of band earnings |
Employee contribution* |
1% of band earnings |
3% of band earnings |
Total minimum contribution |
2% of band earnings |
5% of band earnings |
*Assuming employer pays minimum required by law
For many auto-enrolled employees the increased pension contribution will undo the effects of the changes to income tax and NICs. For example, in 2018/19 an English resident employee earning £27,000 a year could see an annual saving in income tax of £70 and an NIC saving of £31.20. But their net pension contributions will rise by £334.24, leaving a net income loss of £233.04 – or over £19 a month.
Pensions – the lifetime allowance
The lifetime allowance, which sets the effective maximum tax-efficient value of pension benefits, will rise in line with inflation from £1 million to £1.03 million for 2018/19. The lifetime allowance has been on a downward path since 2012, when it was cut from £1.8 million to £1.5 million. Two further cuts followed in 2014 and 2016. There is no corresponding increase to the annual allowance, which remains at a maximum of £40,000.
Payments in lieu of notice
All payments in lieu of notice (PILONs), whether or not contractual, will be subject to income tax and NICs in 2018/19. These will include payments made in circumstances where employees do not work their notice for any reason. Tax and NICs will be charged on any payment that corresponds to the earnings they would have received if they had worked their notice.
The £30,000 exemption will continue to apply to tribunal awards for unfair dismissal, redundancy payments and contractual payments in lieu of redundancy.
The first £30,000 of a non-contractual termination payment will be tax-free. Any balance over £30,000 will be subject to income tax. From 2019/20, a year later than originally planned, employer NICs, but not employee NICs, will also be applied to taxable payments in excess of £30,000.
Venture capital trusts and enterprise investment schemes
Last year the government undertook a ‘patient capital’ review, which was followed by a raft of revisions to venture capital schemes announced in November’s Budget. The changes are intended to increase the emphasis on investment for growth and reduce the scope for structuring schemes to target capital preservation.
From 6 April 2018, the maximum EIS subscription that can qualify for 30% income tax relief will double to £2 million, subject to at least £1 million being invested in knowledge-intensive companies.