Tax information and allowances

We've outlined some information on the current taxation, legislation and HM Revenue and Customs (HMRC) practice which may affect you if you're saving, investing, or have a pension plan. Because tax rules can change, the impact of taxation (and any tax relief) depends on your individual circumstances. 

Pensions and tax

Paying into a pension plan attracts tax relief but there is a limit on how much you pay in before you face a tax charge known as the Annual Allowance. When you're ready to take your pension benefits, if all of your benefits exceed a Lifetime Allowance you may be subject to a tax charge. For most people the Lifetime Allowance isn't a problem. You may also have to pay tax when you start taking an income from your pension.

Understanding all of the tax rules can be very complicated so we’ve prepared a guide to show how this may affect you. Our Tax and Information leaflet is available for you.

You can also get more information by visiting gov.uk/tax-on-your-private-pension

 

Personal Tax

You’ll pay tax on income you receive over a certain amount, depending on the tax bands in place.  The current tax rate you pay in each band if you have a standard Personal Allowance is:

 

Band

Taxable income

Tax rate

Personal Allowance*

Up to £11,850

0%

Basic rate

£11,851 to £46,350

20%

Higher rate

£46,351 to £150,000

40%

Additional rate

over £150,000

45%


* The Personal Allowance will be higher if you claim Blind Person’s Allowance. Your Personal Allowance starts to reduce once your income reaches £100,000 and is lost when income exceeds £123,700.

For more details on Income Tax, go to gov.uk/income-tax

If you're a Scottish Rate tax payer, your Personal Allowance is the same as the rest of the UK as well as your rate of income tax. However, new rates have been introduced:

Band

Taxable income

Tax rate

Personal Allowance*

Up to £11,850

0%

Starter

£11,851 to £13,850

19%

Basic rate

£13,851 to £24,000

20%

Intermediate

£24,001 to £43,430

21%

Higher

£43,431 to £150,000

41%

Top rate

Over £150,000

46%

* The Personal Allowance will be higher if you claim Blind Person’s Allowance. Your Personal Allowance starts to reduce once your income reaches £100,000 and is lost when income exceeds £123,700.

The rates and bands above only apply to earned income like salary, bonuses, and profits. Other incomes e.g. savings and dividends use the UK rates and bands.

For more details on the Scottish Rate of Income Tax, please go to: gov.uk/scottish-rate-income-tax

Inheritance Tax (IHT) is paid if a person’s estate (their property, money and possessions) is worth more than a certain amount when they die. This Inheritance Tax threshold is called the "nil rate band" and is expected to remain unchanged at £325,000 until April 2021. The threshold is per person and on the death of a spouse or civil partner any unused percentage can be transferred to the survivor to increase the available "nil rate band" on their subsequent death.

The Government introduced a ‘residence nil-rate band’ from the 2017/2018 tax year starting at £100,000, for the 2018/2019 tax year this is £125,000. It will then increase as follows:

  • £150,000 in 2019/20 tax year
  • £175,000 in 2020/21 tax year

The new "residence nil rate band" can be used where a residential property is left to a direct descendant on death. Where an estate is valued at over £2million then the "residence nil rate band" is reduced by £1 for every £2 over the limit.  Like the "nil rate band", any unused amount on first death of a spouse or civil partner can be transferred to the surviving spouse/ civil partner.

 

For more details on IHT, go to: gov.uk/inheritance-tax

When do I pay capital gains tax?

If you sell assets, such as personal possessions, shares, property or business assets, you may have to pay Capital Gains Tax. You'll need to pay tax, if you have made any gains after deducting any losses, which exceed your annual exempt amount.

To find out more about the assets which may be included, go to the HMRC website.

How do I work out my capital gains tax bill?

You'll need to work out whether you pay tax in any tax year that you've sold an asset. The tax year runs from 6 April to 5 April the following year.

Here’s the steps you'll need to take, although you should speak to HMRC or a financial adviser to make sure your sums are correct:

Step 1
Work out the gains for each asset you’ve sold in that tax year. From this figure you can deduct certain costs of buying selling or improvement (if applicable). Examples of these are below;

  • fees, for example stockbrokers' fees
  • Stamp Duty Reserve Tax (SDRT) when you bought the shares
  • estate agents' and solicitors' fees
  • costs of improvement works, for example for an extension (normal maintenance costs, such as decorating, don't count)

You may also get relief for property sales if the property was your home, a business asset or occupied by a dependent relative.

Step 2
Add all the gains together for that tax year.

Step 3
Deduct any losses you’ve made for that tax year.

If your gain is above the annual exempt amount (AEA) of £11,700* (2018/2019 tax year), you can deduct any losses you’ve carried forward from previous years (the current years AEA and losses must be used first). If this reduces your gain down to the  AEA, you can carry forward any unused losses to a future tax year.

*This would apply to Individuals, Personal Representatives and Trustees for disabled people.

*For other trustees the annual exempt amount is £5,850. Although if there are multiple trusts this is split equally between them down to a minimum of £1,170 per trust.

Step 4
Check if your total taxable gain is under the AEA. If it is, you won't have to pay tax. If it’s more, you’ll need to pay at the capital gains tax rate:

  • For the part of the gain that falls in the basic rate tax band , you'll pay tax at 10%. Although this rate is 18% for transactions involving residential property.
  • For that part of the gain that is above the basic rate tax band , you'll pay tax at 20%. Although this rate is 28% for transactions involving residential property.

How do I pay any tax?

To pay any tax that’s due, you’ll need to contact HMRC and complete a tax return.

Allowances

Everyone has a Personal Allowance which is £11,850. This is the amount of income you can earn before you pay tax. This will be higher if you claim Blind Person’s Allowance or smaller if your income is over £100,000.
For more details on, go to gov.uk/income-tax-rates

Marriage Allowance

Married couples and civil partners may be eligible for a transferable tax allowance - marriage allowance.

It benefits couples where one is a basic rate taxpayer and one has unused personal allowance. You cannot receive it if either of the parties receive married couples allowance, which is an older allowance only allowed where one partner was born before 6 April 1935.

The marriage allowance allows the basic rate taxpayer to reduce their income tax bill by 20% of the others unused personal allowance.

The maximum amount of unused personal allowance that can be used is capped at 10% of the standard personal allowance.  This means up to £1,190 can be “transferred” saving up to £238 in tax for 2018/19.

This allowance must be claimed from HMRC.  It can be backdated to any tax year since 5 April 2015 including where one partner has died since 5 April 2015. 

Married Couples Allowance

If either you, your husband, wife or civil partner were born before 6 April 1935, the previous Married Couples Allowance still remains. 

The Married Couples Allowance for the 2018/2019  tax year is £8,695.

For more details, go to: gov.uk/marriage-allowance

Savings, Investments and tax

Personal savings allowance

This is used to make part of your savings income tax free. If all your income is in the basic rate tax band the allowance is £1,000. It's £500 if you have income in the higher rate tax band and it's £0 if you have income over £150,000.

Starting rate for savings

There is also a starting rate band of up to £5,000, where savings income is taxed at 0%. It applies fully when you have non savings income less than the personal allowance. 

When added to your personal allowance, this means that if you only have savings income you can get up to £17,500 tax free each year.

For more details on the personal savings allowance, go to gov.uk/government/publications/personal-savings-allowance-factsheet/personal-savings-allowance

Each tax year, there's a limit to the amount you can put into an Individual Savings Account (ISA), Junior ISA (JISA) and the new Lifetime ISA . The allowances apply to Cash ISAs, an Investment ISAs or a combination of the two. The ISA limits are:

Product

Limits for 2018/19

ISA

£20,000

Junior ISA

£4,260

Lifetime ISA

£4,000


For more details, please go to our What is an ISA? page or gov.uk/individual-savings-accounts

There’s an annual dividend zero rate taxation  for the first £2,000. The rates of tax on dividend income above the zero rate band are:

Taxpayer band

2018/19

Basic rate

7.5%

Higher rate

32.5%

Additional rate

38.1%


For details on tax on Dividend Income by Trustees and how this may affect Trusts, please go to gov.uk/trusts-taxes/trusts-and-income-tax.

Before you make a decision, you might want to speak to a financial adviser. They can help you understand the tax rules and how they’ll affect you or visit HMRC or Money Advice Service for more information.

 

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