As you already know, the new tax year began on 6th April. Earlier this month, new tax rules came into effect which will apply until 5th April 2019. Some of them could save you money, such as the changes to Inheritance Tax. The IHT allowance remains frozen at £325,000 for 2018-2019. But if your estate includes your home, your allowance can go up by an additional £125,000. This rose from £100,000 in the last tax year. It means that should anything happen, your heirs will inherit more tax-free money. On the downside, some tax changes could mean you will be paying more. Drivers who bought their car after 6th April 2017 will be paying new Vehicle Excise Duty tax rates this year. The introduction of the controversial “sugar tax” means that fans of soft drinks will be out of pocket. See below for the most important tax changes regarding income and living costs.
Reductions to Income Tax
One positive change for the 2018-2019 tax year is an increase in Personal Allowance. This is the amount of tax-free income you can earn in the year. People who are in the basic rate tax band previously paid 20% tax on earnings from £11,501 – £45,000. From 6th April 2018, the standard tax-free allowance is £11,850. Anyone who earns less than this will not have to pay any income tax. The basic rate tax band is now £11,501 – £46,350. This means that people earning between £45,001 – £46,350 in a year will go down a tax band from last year. Only those earning £46,351 – £150,000 will have to pay the higher rate of 40% tax. The additional rate of 45% still applies for earnings above £150,000. However, anyone earning more than £123,700 doesn’t get a Personal Allowance. For every £2 over £100,000, the Personal Allowance decreases from £11,850 by £1.
Pension Contributions Increase
With a higher Personal Allowance, you could be taking home a little extra each month. However, depending on your salary, it is not likely to be much. This is because the new increase in pension contributions will impact your income tax savings. This applies to employees who take part in an automatic enrolment pension scheme. With these workplace schemes, you will pay a percentage of your earnings towards your pension. Depending on how much you earn, your employer also contributes to your pension. The government will add money to your pension if you pay income tax and pension contributions. Previously, employees paid 1% and employers would match this. From April 2018, employers will pay 2% and employees must pay 3%. Next year this is due to rise again to 3% for employers and 5% for employees. The retirement age will increase to 68 by 2037.
Council Tax Rises
It may be a mild annoyance that you can’t have the money now, but pension contributions are important. These savings will support you later in life when you eventually retire. However, an increase in another area will also affect your income. Whether you pay rent or a mortgage, you also have to pay Council Tax. This is particularly unfair for renters, as the value of the property determines the tax rate rather than the resident’s income. It is important to pay Council Tax as well, though, because it goes towards local council services. These include waste collection and recycling, maintenance of public spaces, social care, and the police and fire services. The largest increase in Council Tax in the last 14 years will still be a blow for many people. Government cuts to funding have left councils desperate to raise the money they need to provide public services.
What this means is that many taxpayers will face a Council Tax increase of 5.99% this year. The cap for a Council Tax hike without consulting residents is 2.99%. Authorities offering social care for adults are allowed a 3% precept on top of this. Councils do not have to hold a referendum if the increase is less than 6%. Councils can and will raise the tax by the maximum of 5.99% without needing resident approval. If they want to raise Council Tax by more than this, they will have had to hold a vote. Pembrokeshire will see the highest tax increase at 11.04%. Wiltshire residents will face a 6.41% rise in their Council Tax, while East Northamptonshire will pay 6.15% more this year. In Bradford, Council Tax bills will go up by 6.05%. Besides these, 32 councils across England will implement increases from 5.8% – 5.99%. This includes Wirral, St. Helens, and Brighton and Hove.
Be sure to check your Council Tax payments for the 2018-2019 tax year. The amount will depend on the property value tax band your home fits into. You can enter your postcode here to find out which tax band your property is in. These will usually range from lower value properties in Band A to higher value properties in Band D. Once you know your tax band, visit your council’s website to find out the local tax rate for your band. You could arrange to pay your Council Tax online as well.