In the Autumn Budget the Chancellor announced that the “off payroll” workers rules that currently apply in the public sector would be rolled out to the private sector in 2020. The Government have now issued a consultation paper that sets out proposed tax and national insurance changes that will impact on those supplying their services through personal service companies.
End users will be required to determine whether the rules apply to the services provided by the worker via his or her personal service company. This will be a significant additional administrative burden on the large and medium-sized businesses who will be required to operate the new rules. The current CEST (Check Employment Status for Tax) online tool would be improved before the proposed start date.
The Scottish Parliament has the power to set income tax rates on non-savings and non-dividend income for Scottish taxpayers. It has been confirmed that the 5 band structure and tax rates (19%, 20%, 21%, 41% and 46%) will remain the same for 2019/20. The thresholds for lower tax rates will rise in line with inflation and the higher rate threshold has been frozen.
The 41% Scottish higher tax rate will apply to taxable income in excess of £30,930 as the higher rate threshold will be frozen (at £43,430 when the personal allowance is taken into account). The 46% additional rate will continue to apply to income in excess of £150,000.
Scottish taxpayers (who live most of the time in Scotland) are given an S prefix PAYE code to ensure that they pay the right amount of tax on their employment income. It is important that HMRC are advised of their correct residential address.
Land and Buildings Transactions Tax is the Scottish equivalent of Stamp Duty Land Tax. For residential properties, the rates and bands for land and buildings transactions tax (“LBTT”) will be unchanged for 2019/20, although the additional dwelling supplement will be increased from 3% to 4%.
The lower rate for non-residential properties will be reduced from 3% to 1%, and the upper rate increased from 4.5% to 5%. The upper rate will apply to the portion of the purchase price over £250,000 (reduced from £350,000).
Despite the continuing uncertainty surrounding Brexit the Chancellor delivered his Spring Statement on 13 March. The purpose of this statement is to update the House of Commons and the country on the state of the economy; it is not intended to include any major tax announcements, and none were made by the Chancellor.
As already announced, the personal allowance and the higher rate tax threshold will increase on 6 April 2019. The personal allowance rises to £12,500 and the basic rate band to £37,500, which means that for most taxpayers the higher rate tax threshold will be £50,000. These thresholds were due to come into effect from 6 April 2020 but the Chancellor announced that the start date would be brought forward by one year. Note that the limits will then remain the same for 2020/21.
The Welsh Assembly now also has the power to set its own income tax rates but have not yet exercised this power. Hence Welsh taxpayers will be subject to the same income tax rates as England and Northern Ireland.
For every £2 that your adjusted net income exceeds £100,000 the £11,850 personal allowance is reduced by £1. Pension contributions and Gift Aid can help to reduce adjusted net income and save tax at an effective rate of 60%.
The restriction applies between £100,000 and £123,700 adjusted net income. Another way that you could avoid this trap would be to agree with your employer to sacrifice some of your salary in exchange for a tax free benefit in kind. These rules changed from 6 April 2017 but employer pension contributions, bicycles, and employer provided childcare would continue to be tax effective.
The amounts that employers and workers will be required to pay into workplace pensions are due to increase from 6 April unless the worker opts out. The new limits will be 5% from the worker and 3% from the employer. The total minimum contribution will therefore increase from the current 5% overall to 8%.
Have you used your 2018/19 £11,700 annual capital gains exemption? Consider selling shares where the gain is less than £11,700 before 6 April 2019. In addition, if you have any worthless shares, consider a negligible value claim to establish a capital loss. You may even be able to set off that capital loss against your income under certain circumstances which could save income tax of up to 45% of the loss.
As far as Inheritance Tax (IHT) planning is concerned, all individuals have a £3,000 annual allowance which means that gifts up to that amount each year are exempt from IHT. If you have not used your £3,000 allowance from 2017/18 you can make gifts of up to £6,000 before 6 April 2019 without the gift being liable to IHT. Also consider making regular gifts out of your income to minimise the growth of your estate that will be liable to IHT. Gifts out of your surplus income are not subject to IHT if properly structured but obviously advice should be sought.
For most taxpayers the maximum pension contribution is £40,000 each tax year, although this depends on their earnings. This limit covers contributions by both the individual and their employer. Note that the unused allowance for a particular tax year may be carried forward for three years and can be added to the relief for the current year, but then lapses if unused. Hence the unused pension allowance for 2015/16 will lapse on 5 April 2019 if unused. Note that under the current rules the net after tax cost of saving £10,000 in a personal pension for a higher rate taxpayer is only £6,000 but there are rumours that this generous relief may be reduced in future.
Your maximum annual investment in ISAs for 2018/19 is £20,000. Your investment needs to be made before 6 April 2019. In addition, have you thought about investing for your children or grandchildren by setting up a Junior ISA? In the 2018/19 tax year, you can invest £4,260 into a Junior ISA for any child under 18.