Category Archives: tax year

The Scottish Draft Budget 2018/19 – a new tax structure?

Scottish money

A “fairer and more progressive” tax system?

The Scottish draft Budget on 14 December 2017 was eagerly awaited following draft proposals from the Scottish Government for reforming the structure of income tax. Derek Mackay, the Scottish Cabinet Secretary for Finance and the Constitution, did not disappoint, revealing a revised income tax framework that he said would “make Scotland’s tax system fairer and more progressive”.

Income tax

Mr Mackay has complicated the tax structure by creating two new rates of tax – a starter rate at 19% and an intermediate rate at 21%. He has added 1% to the current 40% higher and the 45% additional rates. The proposed new income tax bands above any available personal allowance for 2018/19 are as follows:

Taxable Income

£

Band Name Tax Rate

%

0-2,000 Starter 19
2,001-12,150 Basic 20
12,151-32,423 Intermediate 21
32,424-150,000* Higher 41
Over 150,000* Top 46

* Those earning more than £100,000 will see their personal allowance reduced by £1 for every £2 earned over £100,000.

There are various consequences to this new structure.

  • The personal allowance for 2018/19 has been set at £11,850 by Westminster. The Scottish basic rate band will run from this level to £24,000 of income – equating to projected median earnings.
  • The higher rate (41%) threshold for 2018/19 will be £44,273, compared with a figure for the rest of the UK of £46,350 (and a 40% higher rate).
  • Nobody in Scotland earning less than £33,000 will pay more income tax in 2018/19 than in 2017/18, according to Mr Mackay. That covers some 70% of Scottish taxpayers.
  • The basic rate remains at 20%, which should alleviate the concerns of pension providers about the operation of relief at source. However, there will be a band of intermediate rate taxpayers who will be able to reclaim an extra 1% relief on their pension contributions – in theory at least.

Land and Building Transaction Tax

A change to Land and Building Transaction tax (LBTT – the Scottish equivalent of SDLT) was made to help first time buyers, as was widely expected after last month’s Westminster Budget. However, Mr Mackay was less generous than Mr Hammond and only increased the nil rate slice of LBTT by £30,000 to £175,000 for first time buyers – giving them a maximum saving of £600 – starting in 2018/19. There does not appear to be a cap on property value, unlike Mr Hammond’s version.

It is important to bear in mind that because the Scottish National Party does not have a majority, the Budget only represents draft proposals and that these may change before becoming law (which is what happened for 2017/18).

Advertisements

April tax resolutions

Spring is in the air which can only mean one thing – the new tax year is under way.

Now is a good time to remind your clients to check their personal finances to make sure everything is in order. Tax codes for 2016/17 look to be particularly tricky with bank and building society interest and dividends all being received gross for the first time. It’s important that your clients realise they can ask HM Revenue & Customs to remove this estimated income and also correct any other errors.

Another area for clients to review is personal expenses. It has emerged that many small businesses don’t bother making claims, with nearly £250m worth of expenses with individual values of £10 or less being unclaimed by UK micro-business owners every year. A recent survey of web professionals carried out on behalf of FreeAgent, highlighted that 22% of respondents said they didn’t think it was worth claiming any expense that cost them £10 or less. It was also revealed that 14% of people say they would not bother claiming expenses if they were worth less than £5. Only 39% say that they claim back all of the expenses they incurred, while 5% admit they don’t claim any of their expenses.

Make sure you remind your clients to claim back what they’re entitled to!

Happy new year – for the 2016/17 tax year!

iStock_000003373270_Medium- cropped

We had some muttering about how early Easter was this year, with the usual questions about why Easter is such a moveable feast. Luckily there is no such confusion with the start of the new tax year on 6 April – safely away past any implications of April Fool’s.

New state pension – flat rate-ish

This year a number of important changes are taking effect today, not least of which is the start of the new state pension for newly qualified pensioners. Billed as ‘single tier’, the government aims to simplify the system by removing extra elements such as the second state pension. But it also means that over time pensions pay outs will become cheaper for government, who have stated that the short-terms winners are set to be the self-employed and some women.

The new state pension is set at a flat-rate of £155.65 a week. But it’s already clear that some new pensioners will not receive this amount and may be in for a shock. So the idea of a single, flat rate may not be quite as clear-cut as the government may like us to believe. People now in their 20s and 30s are unlikely to find their pensions measuring up to those of their parents when it’s their turn.

Speaking of pensions, the lifetime allowance for 2016/17 has now reduced by 20% from £1,250,000 to £1,000,000. You might need to consider claiming transitional protection.

Tax rates to watch

The other big change announced in the March Budget was an unexpected cut to the main rates of capital gains tax (CGT) for 2016/17. Higher and additional rate taxpayers will now pay 20%, with a 10% rate for other taxpayers. Gains on residential properties and carried interests however will remain at the previous rates of 28% and 18%.

If you’re a buy-to-let investor or are considering a second home, the change to Stamp Duty that took effect from 1 April might affect you – there’s now an additional 3% applied to purchases of additional residential properties.

On a basic level, the personal allowance has now gone up to £11,000. If your income is over £100,000, the allowance is reduced by 50p per pound of income over £100,000, so you might want to review your pension contributions or charitable gifts to benefit from the full allowance.

And don’t forget that as of today basic and higher rate taxpayers have a new savings allowance at 0% tax of £1,000 or £500.

So there’s quite a bit to take in and plan for over the next full tax year – for clients and advisers alike.