As we approach the end of the 2017/18 tax year and look towards the new one, many businesses and individuals will be making sure that they take advantage of the current year’s allowances and regulations. This is particularly wise in the next couple of weeks, as there are some significant changes taking place on 6 April 2018 that will impact both companies and those with a personal tax account.
Here, we take a brief look at some of the key changes and how you can best plan for the coming tax year.
Planning: ISAs and IHT exemptions
Each year, individuals with an ISA can invest a maximum of £20,000 without incurring tax charges. Those who haven’t taken advantage of this limit are advised to do so as far as possible.
Similarly, those looking to make gifts to beneficiaries can take advantage of the £3,000 tax-free allowance that is available each year.
Key changes: Inheritance tax
The Residential Nil Rate Band that can be used against the value of a main home when it is passed from a decedent to their children is increasing on 6 April 2018. The allowance will rise from £100,000 to £125,000, meaning that a married couple has the potential to pass on up to £900,000 to beneficiaries under the nil rate band.
Key changes: Dividends
Business owners have just days left to ensure that those in receipt of dividends can benefit from the current £5,000 allowance. As of 6 April 2018, the available tax-free allowance will fall to just £2000 per year, which could mean a tax bill increase of £1,143 to some companies.
Investors will inevitably be affected by the decrease too, and are being advised by tax accountants to seek help from their investment advisors and rebalance their income streams where possible.
Key changes: Income tax
Rental businesses will see continued restriction on the income tax relief available on mortgage interest payments. In 2018/19, the deduction from property income will decrease from 75% to 50%, with the remaining 50% given as a basic tax rate reduction. As a consequence, some taxpayers will be subject to higher tax rates on their income.
Key changes: Offshore trusts
After much discussion, the decision has been made to prevent indirect distributions from offshore trusts to UK beneficiaries. Indirect distributions allowed gifts to be made to beneficiaries without being liable for tax, but this will no longer be possible from April 2018. The new legislation means it’s imperative for trustees and beneficiaries to seek advice before making distributions and subsequent onward gifts.
Key changes: Non-UK Domiciliaries
Non UK-domiciled individuals become UK domiciled automatically if they have lived in the UK for 15 of the past 20 tax years. Those who are set to become UK domiciled this financial year should look to settle their worldwide assets onto protected trusts, so that they do not incur the same UK tax implications as their UK-based assets. If you think you will be affected by this, speak to your tax specialist for advice.