When the subject of tax comes up, many of us tend to switch off. It’s a complicated business, and it can therefore be easy to ignore announcements about changes to the legislation. But for business owners and individuals alike, the tax changes that have taken effect from 6 April 2018 could be important. Some key modifications have taken place that impact a range of people with a range of interests – here, we outline what they are.
One of the changes with far-reaching consequences is that concerning dividends. Where previously there has been a £5,000 per annum tax-free allowance on dividends, this has reduced significantly to only £2,000 per year. This means some businesses will be facing an extra £1,143 on their tax bill for 2018/19.
The change also impacts investors. Income streams may need rebalancing following the new, restricted limit, so investors should speak to their advisors to ensure they’re not losing out.
Residential Nil Rate Band
There’s also a change that affects individuals who want to plan for the future of their beneficiaries. The Residential Nil Rate Band, which benefits homeowners looking to pass their main residential property onto their children, increased on 6 April 2018. It’s risen from £100,000 to £125,000, meaning that a total of up to £900,000 is available to married couples to be used against an estate under the nil rate band.
Mortgage interest relief
In April 2017, an initiative was introduced to restrict the amount of income tax relief available to landlords on residential property finance costs. The government claims this is to make the tax system fairer, preventing landlords with higher incomes from getting the most generous tax treatment.
What this means for rental businesses and private landlords is that the income tax relief on eligible costs (such as mortgage interest rates) will reduce to 50% from the previous 75% rate. The other 50% will be given as a basic rate tax reduction, meaning some taxpayers will find themselves charged higher rates on their income than before.
Certain non-UK domiciliaries have an opportunity to reduce their tax liability between now and April 2019. Those with offshore accounts who claimed the remittance basis anytime before 5 April 2017 can make use of a cleansing window for said accounts. This window enables the separation of the funds into their individual components and allows them to be put into new accounts. Clean capital funds can then be ring-fenced for the non-dom’s use in the UK without the associated tax consequences.
This is a particularly complex area of tax, and we recommend that a tax accountant is employed to assist with it.
Finally, offshore trusts with UK beneficiaries are no longer able to make indirect distributions to beneficiaries in order to avoid tax consequences. This move was widely discussed, as it is now possible that unintended implications of it will affect innocent situations, but it went ahead on 6 April 2018 all the same. As such, trustees and beneficiaries are advised to seek advice before making onward gifts from now on.