Capital Gains Tax 2018/19

Capital Gains Tax Allowance 2018/19This is a summary of the Capital Gains Tax Allowance for 2018/19.

Capital Gains Tax (CGT) is payable when you sell something and make a profit on it as well as when you give something away that would otherwise be included in CGT.

Some things are not liable for CGT however and you should check the rules with HMRC for your individual circumstances.

The amount of CGT that is due depends on the profit you make (i.e. the amount you sell it for less the amount you paid for it) and is only payable if it exceeds the CGT allowance for the tax year in which you make the gain.

The CGT Allowance for 2018/19 is £11,700.

This amount has been increased from 2017/18 when the rate was £11,300.

Examples of when Capital Gains Tax is due could be:

  • On the sale of a second property
  • On the disposal of personal assets that are worth more than £6,000 (although this does not include your car)
  • On the sale of shares (that are not held in an ISA)

Obviously if your profits from selling these types of goods/assets is below the allowance then no tax is payable.

Personal Allowance 2018/19

budget 2017 uk tax allowances
Philip Hammond delivered his 2017 Budget today.

Budget 2017

The Chancellor Philip Hammond has announced in his 2017 Budget today that the personal allowance will increase with effect from April 2018 to £11,850.

This is the amount that people can earn before having to pay any tax on earnings above that level.

An increase of £350 in the personal allowance means an extra £70 a year (or £5.83 a month) in the pocket of a basic rate tax payer.

Currently the personal allowance sits at £11,500 for the year 2017/18 and so this is an increase of 3.04%.

The eventual aim that has been proposed by the government is to get the personal allowance to £12,500 a year.

The higher rate tax bracket will also be increase from £45,000 to £46,350. The aim is for this to be increased eventually to £50,000.

You can find all of the current personal allowance rates in the tables on this page (these will be updated as they are announced).

Also announced in the Budget today was the increase in the National Minimum Wage of 4.4%, rising from £7.50 an hour to £7.83 an hour with effect from April 2018.

Tax Code Letters M and N

If you have the tax code letter M or N after the number in your tax code notification then these two letters are linked as it means that you  have either transferred or have received a transfer of the 10% personal allowance to/from your partner.

The marriage transfer allowance was introduced so that those who did not pay tax on their earnings up to the full personal allowance, could transfer 10% of their allowance to their partner (as long as their partner was only paying basic rate tax).

So, for example if your tax code is 1265M that means that your partner has transferred 10% of their personal allowance to you (amounting to £1,150) and this is added on to your personal allowance of £11,500, giving you a total personal allowance of £12,650.

Conversely, if your tax code is 1035N then that is likely to be because you have volunteered to give up 10% of your personal allowance to transfer over to your partner who can make use of it. This is worked out by taking £1,150 away from £11,500, thus giving you a personal allowance of £10,350.

(The above figures are based on amounts for the 2017/18 tax year.)

If you believe that your tax code is wrong then you should contact HMRC on 0300 200 3300.

 

 

Tax Code Letters – L

Letter L

When you are given a tax code it will consist of some numbers followed by a letter.

The number will indicate how much personal allowance you can have in the relevant tax year and the letter gives you more information about how that number was arrived at.

In the case of the letter L, this is the most common letter used as it is given to those people who are entitled to the standard personal allowance.

If you are assigned the letter L at the end of your tax code then it is likely that you have pretty simple tax affairs.

In order to work out the amount of personal allowance that you are are entitled to you will need to multiply the number by 10 to get the actual figure.

So for example, if your tax code is 1150L then you multiply 1150 by 10 and you get a personal allowance of £11,500 (which is the standard personal allowance for the tax year 2017/18).

If you believe that your tax code is wrong then you can ring HMRC on 0300 200 3300.

 

 

Class 2 NICs Abolished From 2018

The self-employed on lower earnings will now have to pay Class 4 NICs.

Who Pays Class 2 NICs?

Class 2 National Insurance Contributions are paid by self-employed people whose profits are above the Small Profits Threshold which for 2017/18 is £6,025.

If you earn below that level you are eligible for the small earnings exception (although this was abolished in 2015) which means that you do not have to pay NI but can pay voluntary Class 2 if you wish to.

If you earn above £8,164 then you pay Class 4 NI as well on your profits.

The payment of Class 2 contributions (which are currently set at £2.85 a week) enables those people who pay them access to contributory benefits (class 4 does not).

However, the 2016 Autumn Statement confirmed that Class 2 NICs will be abolished with effect from 2018/19 and the self-employed will then have to pay Class 4 (or voluntary Class 3) NICs. Class 4 NICs will then qualify for contributory benefits.

Complex Rules

The rules around this are quite complex and there will apparently be some transitional help. But in essence, Class 4 contributions will need to be paid by the self-employed on earnings over the Lower Profits Limit.

For 2017/18 the Lower Profits Limit was £8,164 and any profit between that and £45,000 was charged at 9%. Profits over £45,000 are subject to a charge of 2% for Class 4 NICs.

Payment is Dependent on Profits

Once the Class 2 NICs are abolished a new threshold will be introduced called the Small Profits Limit. This will be equivalent to 52 x the Lower Earnings Limit. For 2017/18 this is £6,025.

Anyone whose profits fall between the Small Profits Limit and the Lower Profits limit will not need to pay the Class 4 NI contributions but will be treated as if they have paid them.

As Class 4 NICs will in future give access to contributory benefits, this in turn includes qualifying years for the State Pension.

In Summary

If your earnings are below £6,025 (or the rate declared for 2018/19) then you will not need to pay NICs but can choose to pay the voluntary Class 3 NICs which are £14.80 a week.

If your earnings are between £6,025 and £8,164 (or equivalent 2018/19 levels) you do not have to pay NI but will be credited with paying Class 4 NICs.

If your earnings are above £8,164 (or 2018/19 equivalent) you will pay only Class 4 NICs at the effective rate.

Apply Online for the Marriage Allowance

We have written in the past about the relatively new Marriage Allowance that was introduced so that married couples or those in a civil partnership are able to transfer part of their personal allowance.

The Marriage Allowance can be transferred from one half of the couple that is not using their full personal allowance to the other half who would be able to make use of it at the basic rate of tax.

You can apply for the Marriage Allowance online and to do this you will need some details relating to yourself and your partner. You can check out all the information here.

You can also backdate it to 5th April 2015 if you were eligible for it in previous tax years but have not yet claimed it.

Once you have applied for it, you will continue to have the Marriage Allowance transferred to your partner until you let HMRC know that you are no longer eligible or your circumstances change.

The person who receives the extra allowance will either get it through their tax return or as a change to their tax code, but it can take a few months for it to be processed. Don’t worry though, as it will be backdated to the start of the tax year.

Tax Allowances for 2017/18

With the new tax year approaching rapidly we thought it was worth having a summary of the new UK tax allowances as they will stand for 2017/18.

You can always find a summary of allowances here together with links to further information and clarification on certain allowances, but otherwise here they are in summary:

Personal Allowance (amount of earnings you can have tax free) – £11,500

ISA Allowance (amount available to invest over all types of ISA) – £20,000

Capital Gains Tax Allowance (amount of gains allowed before tax is due) – £11,300

Inheritance Tax Allowance (amount that can be inherited tax free, including property) – £425,000

Personal Savings Allowance (amount of savings income that is tax free) – £1,000/£500

Property Allowance (amount that can be earned by small property related deals) – £1,000

Trading Allowance (amount that can be earned tax free from minor trading) – £1,000

Rent a Room Allowance (amount that can be earned tax free from renting out a room in your home) – £7,500

Not all of these allowances apply to everybody so you should check that they apply to you before using this information for your personal tax affairs.

2017/18 Tax Codes

It is generally the case that UK taxpayers will be issued with a new tax code each year. Tax codes are issued to individuals and their employers so that the employer knows how much tax they should deduct from the employee’s earnings.

Standard tax code

The standard 2017/18 tax code for those with simple financial situations (for example, having only one job, no tax owing from previous years, no other employee benefits etc) is 1150L.

This standard tax code means that you are entitled to the UK personal allowance of £11,500 for the year and therefore that is the amount that you can earn before any tax is deducted.

But it may be the case that you do not have this standard tax code or perhaps your code has another letter at the end (instead of L).

If this is the case then you may have one or any of the following which may affect your tax code (and these are just some examples):

  • earnings from another job
  • benefits in kind
  • tax owed from previous years
  • pension income
  • transfer of the marriage allowance
  • earnings over £100k
Can’t figure out your tax code?

If you can’t figure it out though, you will probably need to speak to the Inland Revenue to check that you have the right tax code and will not be paying too little (or indeed too much) tax in 2016/17. The number to call for tax code queries is 0300 200 3300.

Or you may find it easier to check your tax code online which you can here do if you have a Government gateway ID.

Tax code letters

So the letters at the end of the tax code may also give you an indication of what your code is all about.

There are a couple of new tax codes that have been introduced recently which take account of the new transferable marriage allowance – those are the letter M if you have received a transfer of the marriage allowance and the letter N if you have given a up part of your allowance.

You can check out a full list of the tax code letters and what they mean on the Inland Revenue website.

Is the Personal Savings Allowance Increasing in 2017/18?

The personal savings allowance was introduced in April 2016 and it meant that 95% of people no longer had to pay any tax on their savings.

Anyone who was in the 20% or the 40% tax brackets was entitled to a personal allowance of either £1000 or £500 respectively. Those in the highest tax bracket were not entitled to any personal tax allowance.

The figures given are the amount of interest that savers could earn before they would have to pay any tax on that interest. The figures were set for the initial tax year of the allowance which was 2016/17.

But if you are looking to see if the personal savings allowance is increasing for the new tax year 2017/18 then the answer is no, the allowances will remain at the figures of £1,000 for basic rate tax payers and £500 for higher rate tax payers.

With interest rates as low as they currently are this means that savers would need to have a significant amount of savings before they actually need to pay any tax on the income received from those savings.

In addition to the personal savings allowance there is also the £,5000 dividend allowance which means that savers will not have to pay any interest on the first £5,000 of dividend income that they receive.

Minor Trading Allowances 2017/18

In the tax year 2017/18 the government will be introducing a new UK tax allowance for minor trading and property activity.

The allowance for each category is £1,000 and this means that individuals (who the government classes as self-starters) who have earnings under these two categories can earn up to the allowance and not pay tax on those earnings.

The allowances are also available to those people who earn more than £1,000 in each category, in which case those people will be able to earn the first £1,000 tax free.

The allowance is aimed at the entrepreneurial people in today’s society who aim to make some extra money on the side by doing things like renting out their driveway or selling goods on eBay.

The allowance could also include people who make money buying and selling at car boot sales
The allowance could also include people who make money buying and selling at car boot sales

But it is not just limited to these activities and could include for example people making and selling cakes in their spare time or those who make money buying and selling items at car boot sales. It could also cover people who rent out their garage or perhaps some land and those people who do some paid gardening or DIY work at weekends.

Anyone whose earnings are less than £1,000 a year in these categories will not need to fill in a tax return to declare any of this income but people earning over £1,000 will need to declare those earnings and deduct the £1,000 allowance from the income which would be taxable.

Another prime example would be people who use AirBnB to rent out rooms in their house (but not those who use the rent a room allowance to claim tax relief).

Both reliefs are available so if you have earnings in both categories you can claim up to £2,000 in these additional allowances.