Tax information and allowances

Here we outline some information on the 2017/18 taxation, legislation and HM Revenue and Customs (HMRC) practice which may affect you if you are saving, investing, or have a pension plan. Please note that this is general information and tax rules may vary depending on your individual circumstances and are subject to change. 

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 Questions & Answers document provides information such as:

  • Tax relief on pension contributions and the limits
  • Annual Allowance
  • Tapered Annual Allowance
  • Money Purchase Annual Allowance
  • Lifetime Allowance
  • Pensions Protection

You can also get more information on the gov.uk website by visiting https://www.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 for a particular tax year.  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 £11,500

0%

Basic rate

£11,501 to £45,000

20%

Higher rate

£45,001 to £150,000

40%

Additional rate

over £150,000

45%


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

For more details on Income Tax , please visit  https://www.gov.uk/income-tax

If you are 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, the amount you can earn before paying higher rate tax will be £31,500 (totalling £43,000 which includes the £11,500 personal allowance). 

For more details on the Scottish Rate of Income Tax, please visit the https://www.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 is called the ‘nil rate band Inheritance Tax threshold’ and is expected to remain unchanged at £325,000 until April 2021. The threshold is per person and any unused percentage of this can be passed between married couples and registered civil partners.

The Government has introduced a ‘residence nil-rate band’ from the 2017/18 tax year starting at £100,000. This will increase as follows:

  • £125,000 in 2018/19  tax year
  • £150,000 in 2019/20 tax year
  • £175,000 in 2020/21 tax year

This will be subject to a maximum estate valued at £2m. but  will be gradually withdrawn, or tapered away, for an estate valued at more than £2 million even if a home is left to direct descendants. This will be reduced by £1 for every £2 that the value of the estate is more than the £2 million taper threshold.

For more details on IHT, please visit: https://www.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, visit 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 allowable losses you’ve made for that tax year.

By the way, if your gain is above the annual exempt amount (AEA) of £11,300* (2017/2018 tax year), you can deduct any allowable losses you’ve made from previous years (the current years AEA and allowable 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 £5,650. Although if there are multiple trusts this is split equally between them down to a minimum of £1,130 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:

  • If you are a basic rate tax payer, you'll pay tax at 10% on the gain. Although this rate is 18% for transactions involving residential property or carried interest.
  • If you are a higher or additional rate tax payer, you'll pay tax at 20% on the gain. Although this rate is 28% for transactions involving residential property or carried interest.

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

The standard Personal Allowance is currently £11,500, which is the amount of income you can earn before you pay tax. This can may be higher if you claim Marriage Allowance or Blind Person’s Allowance or smaller if your income is over £100,000.

For more details on, please visit www.gov.uk/income-tax-rates

Marriage Allowance

The Marriage Allowance allows individuals to transfer £1,150 of their Personal Allowance to a husband, wife or civil partner. To qualify, the lower earner needs to earn no more than £11,000 and their partner’s income is between £11,001 and £45,000. Also, both partners need to be born on or after 6 April 1935.

Married Couples Allowance


If either partner is born before 6 April 1935, the previous Married Couples Allowance still remains. The maximum amount of married couple’s allowance will be £8,445 per year (£3,260 minimum).

For more details, please visit https://www.gov.uk/marriage-allowance

Savings, Investments and tax

Your Personal Savings Allowance, so the amount of income you can earn on your savings before you pay tax, depends on your tax situation. The current allowances are:

Band

Allowance

Basic rate

up to £1,000

Higher rate

up to £500

Additional rate

Nil


You will need to pay tax on any amounts above your allowance.  Although if your total taxable income is less than £17,000 you won’t pay any on income from your savings.

For more details on the personal savings allowance, please visit https://www.gov.uk/government/publications/personal-savings-allowance-factsheet/personal-savings-allowance

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

Product

Limits for 2017/18

ISA

£20,000

Junior ISA

£4,128

Lifetime ISA

£4,000


For more details, please see our What is an ISA? page or visit https://www.gov.uk/individual-savings-accounts

There’s an annual dividend zero rate taxation  for the first £5,000. The rates of tax on dividend income are:

Taxpayer band

2017/18

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 visit this information on the gov.uk website.

Tax and allowances is a complicated subject so we’ve prepared a Questions & Answers document to help you understand how the changes may affect you. Alternatively, you may wish to speak to a financial adviser or visit HMRC or Money Advice Service for further information.

 

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