With the new tax year fast approaching, Saffery Champness highlights the key areas for taxpayers to have on the radar.
New personal allowance and National Insurance contributions (NICs): 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. At the same time, NICs 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.
Inheritance tax (IHT): 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. Despite this, 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.
The Office for Tax Simplification continues to review IHT and changes to the system in the coming year should not be ruled out.
Pensions lifetime allowance: 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. For those with an annual income in excess of £150,000, the annual pension contributions limit of £40,000 is tapered by £1 for every £2 of income in excess of £150,000, reducing to a limit of £10,000 for those with income over £210,000.
Digitalisation of tax: From 1 April 2019, most businesses over the VAT threshold will have to submit their VAT returns digitally. Making Tax Digital will not, however, be extended to other taxes and taxpayers before 2021.
Capital gains tax (CGT): There have been no changes to CGT rates, but the annual exemption will increase to £12,000 in 2019-20.
A complex landscape for landlords: The CGT situation is slightly more complicated for property owners: from 6 April 2019, the scope of CGT for non-UK residents will be extended to include all disposals of UK property.
Looking ahead, from 6 April 2020, UK residents will need to make a return to HM Revenue & Customs (HMRC) and a payment on account of CGT within 30 days following the completion of a residential property disposal. These rules will also be introduced for non-residents, but on a different timescale. This is in addition to changes due to take effect in 2020 to Lettings Relief and the restriction to Private Residence Relief which reduces the final period exemption from 18 months to 9 months.
James Hender, Head of Private Wealth at Saffery Champness, commented:
“Clearly all eyes will be on Westminster and Brussels as the new tax year approaches, but while so much is dependent on the outcome of the Brexit negotiations, one thing which is something of a bastion of solidity is domestic tax policy. Some aspects, such as the state aid rules around Enterprise Investment Schemes, may be areas of reform post-Brexit but, on the whole, the road ahead for taxpayers in 2019-20 is relatively clear.
“There are some significant changes coming into effect though, particularly for overseas owners of UK property, while the OTS’s review of inheritance tax is still in play and may result in some tinkering. Any significant reforms, though, are likely to be towards the end of the year, perhaps in the Budget, or when the government has more time and resources to prioritise issues other than Europe.”
Lucy Brennan, partner at Saffery Champness, commented:
“One of the interesting things to look out for over 2019-20 and on towards 2021 is the tax treatment of property and landlords by HMRC. The property CGT changes for non-UK residents in April 2019 are just the first in a line of reforms coming down the track in the next few years that will have a significant impact on landlords.
“The signals from the Treasury suggest that some of the biggest historic money spinners, notably the so-called sin taxes, are likely to decline in the next few years as the tax take catches up with changes to lifestyle habits. The signs are that HMRC will be looking to plug the gap and it would not be a surprise to see a cranking up of taxes on property as part of the strategy.
“In comparison with many countries, property in the UK is a relatively lightly taxed asset. It’s clear that HMRC has identified property as a target area, with the let property campaign still remaining open since its launch in 2013. The government estimated then that up to 1.5 million landlords had underpaid or failed to pay up to £500 million in tax between 2009 and 2010 and, with the campaign needing some way to go before hitting that target, it looks certain that landlords will remain in HMRC’s sights for a while yet. Anyone who owns multiple residential properties should be carefully considering their tax position now and making use of the campaign, as well as reviewing the other relevant reliefs available before the tax environment becomes more complex, and economically challenging.”