With the new year upon us, James Hender and Lucy Brennan, partners in Saffery Champness’ Private Wealth Group, highlight five of the key tax changes coming into effect in 2019.
The changes include:
- Tax-free personal allowance rises
- Inheritance tax change on property
- Pensions Lifetime Allowance rises
- Help-to-Buy ISA ends
- Stamp Duty Land Tax (SDLT) relief for shared ownership
Tax-free personal allowance rises
During the Budget, the Chancellor announced that from 6 April the nil rate band for income tax will increase from £11,850 to £12,500 a year early, while the higher rate tax band increases from £46,350 to £50,000.
What he didn’t mention in his speech was that National Insurance contributions will rise to 12% on money earned between £46,350 and £50,000, which will negate a lot of the savings from the personal allowance increase.
James Hender, Head of Private Wealth at Saffery Champness, comments: “The chancellor gave with one hand and took away with the other. Whilst the rise in the personal allowance came a year earlier than anticipated, the increase in National Insurance contributions means that the amount people save in the higher rate tax bracket has not, in fact, changed an awful lot.
“32 million people will be delighted when the personal allowance rises on 6 April, but it must also be remembered that the level at which the additional 45% rate of tax kicks in has not changed since it was introduced in 2010, and a perhaps unforeseen consequence is that fiscal drag is increasingly hitting higher earners in the economy.”
Inheritance tax on property
While the tax-free amount for inheritance tax will still be £325,000, the additional £125,000 if passing on the home to a direct descendant or spouse will rise to £150,000 in April. However, anyone with an estate valued at more than £2,000,000 will lose that allowance by £1 for every £2 they are over the limit.
James Hender comments: “The recent OTS report found that inheritance tax was far too complicated and confusing. The rise in additional relief, while helping some married couples, will likely do little to dispel the notion amongst many tax payers that this is a complicated tax.
“More broadly, although only 4% of death estates are subject to inheritance tax, when people are taxed throughout their life the possibility of being taxed for what they see as a second time on death engenders a real sense of injustice.
“Next year we can also expect the next phase of the OTS review of inheritance tax, exploring technical and design issues. We hope this will be a progressive next step on the journey to simplifying one of the more complex aspects of the tax system.”
Pensions Lifetime Allowance rises
The Pension Lifetime Allowance rises from £1,030,000 to £1,055,000 in 2019, in line with CPI inflation. The Annual Allowance, however, is staying at £40,000.
James Hender comments: “This uplift in the Lifetime Allowance will have very little affect when the Annual Allowance still hovers at the £40,000 mark. In recent years we have seen an increasing number of people actively seek more diversified retirement portfolios as they look to mitigate the effects of the reduction to the pensions Annual Allowance and potentially being priced out of the buy-to-let property market. Venture Capital Trusts, as well as shares qualifying under the Enterprise Investment Schemes, are some of the tax efficient investment vehicles people are increasingly turning to.”
Help-to-Buy ISA ends
People will be unable to open a Help to Buy ISA after 29 November 2019. Those who have opened one will be able to pay in for the next decade and must claim the bonus by 2030.
Lucy Brennan, partner at Saffery Champness, comments: “The Lifetime ISA has now superseded the Help to Buy ISA, offering up to £1,000 a year more for first-time buyers, but also with more restrictive conditions.
“Looking ahead, despite recent calls for a revamp of savings and investment, including the Lifetime ISA being scrapped, any significant changes look unlikely at present. Many expected further ISA reform in Budgets over the last few years, including raising the annual allowance, which would fit in with the government’s aim to encourage savers to have diverse portfolios rather than simply relying on pensions to fund retirement.
“The Lifetime ISA and Help-to-Buy ISA were part of this drive. More broadly, ISAs overall remain a tax efficient system for both government and savers, with many benefits that individuals should seriously consider as an option.”
SDLT relief for shared ownership
The Chancellor announced in his most recent Budget that there would be an extension to the SDLT cut for first time buyers for shared ownership up to £500,000, backdated to 22 November 2017.
James Hender comments: “It is very unusual for Chancellors to make tax changes retrospective and first-time buyers of certain shared ownership properties will be delighted to have a New Year’s gift from HM Revenue & Customs by being able to claim back Stamp Duty which they paid over the last year.”