HJS Financial Planning Update – February 2019

This month we’re highlighting six tax rule changes coming up in 2019/2020 that you should be aware of.

1. Personal allowance changes

One of the standout announcements in the Chancellor’s 2018 Budget was the increase in the personal allowance from £11,850 to £12,500, a year early. The basic-rate tax band is also increasing from £46,350 to £50,000.

What received slightly less focus was the rise in national insurance contributions to 12% on money earned between £46,350 and £50,000, which will negate a lot of the savings from the higher-rate increase.

While the Chancellor has given with one hand, he has taken away with the other, which means in effect not a lot has changed for those paying tax in the higher-rate band. But there is no doubt that the 32 million people for which the personal allowance rise affects will be delighted when it comes into force in April.

Considering the level at which the additional 45% rate of tax kicks in has not changed since it was introduced, a perhaps unforeseen consequence is that fiscal drag is increasingly hitting higher earners in the economy.

 

2. Inheritance Tax

While the tax-free amount for inheritance tax (IHT) will still be £325,000, the additional £125,000 (if passing on the home to a direct descendant or spouse) will rise to £150,000 in April.

However, anyone with an estate valued at more than £2 million will lose that allowance by £1 for every £2 they are over the limit.

A recent Office for Tax Simplification report found IHT far too complicated. This tinkering around the edges, while helping some, will do little to dispel this notion, particularly when it comes to issues arising from complex estates.

 

3. Pensions

In the new tax year, the pensions lifetime allowance rises from £1.03 million to £1.055 million, in line with consumer prices index inflation. Despite rising by £25,000, this will have very little effect when the annual allowance still hovers at £40,000 and goes down to £10,000 for those earning over £210,000 a year.

In recent years, an increasing number of people have actively sought more diversified retirement portfolios, as they look to mitigate the effects of the reduction to the pensions annual allowance and potentially being priced out of the buy-to-let property market. Venture capital trusts, as well as shares qualifying under enterprise investment schemes, are some of the tax-efficient investment vehicles people are increasingly turning to.

 

4. Stamp Duty Relief

The Chancellor announced in last year’s Budget there would be an extension to the stamp duty cut for first-time buyers for shared ownership up to £500,000, backdated to 2017. It is very unusual for Chancellors to make tax changes apply retrospectively. First-time buyers of certain shared ownership properties will be delighted to have a New Year’s gift from HM Revenue and Customs by being able to claim back stamp duty they paid over the last year.

 

5. Capital Gains Tax

On 6 April, the scope of capital gains tax is again being broadened for non-UK tax residents to include disposals of all real estate located in the UK, not just residential property. This can be seen as part of a wider crackdown on landlords, and a number of other changes coming into effect in 2020 will only exacerbate that feeling.

Come April, much attention will undoubtedly be on Brexit, with the uncertainty a significant concern. However, for most individuals, the tax landscape is a domestic issue and life will certainly carry on, regardless of Brexit.

 

6. Probate Fees (watch this space!)

Currently there is a fixed fee of £215 (or £155 for families who use a solicitor).  However, with effect from April 2019, estates valued at more than £2m will now pay £6,000, while those worth between £1.6m and £2m will pay £5,000 and those between £1m and £1.6m £4,000.

Estates worth between £500,000 and £1m will have to find £2,500, while those in the £50,000 to £300,000 price bracket will pay a more affordable £250. Those valued at less than £50,000 will be exempt compared with the current and lower threshold of £5,000.

According to estimates, one in five families who pay fees will need to find at least £2,500.

This is under some attack at the moment as there is a concern in parliament that this is more of a tax than a fee but the government is using the rules covering fees to bring in such a huge increase in costs.

Therefore, it is not certain this will come into effect in the new tax year but it is likely to happen.

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