A guide to personal tax planning
In the last 12-18 months, the UK has experienced big changes to the standard tax charges, as well as those associated with buying and selling properties, including a variety of increases, reductions and removals. As taxes are a big part of life and of any property investment, we have taken it upon ourselves to create a guide to help you understand the various taxes that you are likely to come up against as an individual and as an investor in the UK property market.
Taxes for savings and investments
With ISA’s (Individual Savings Account) being tax efficient and with the ability to put £20,000 into an ISA throughout the year, it is a fantastic opportunity for tax planning, used particularly well with investment accounts or pensions that will be charged capital gains tax. Saving money in a PSA (Personal Savings Allowance) allows the individual to benefit from £1000 savings income exemption as a basic rate taxpayer, or £500 as a higher rate taxpayer.
Income and dividend taxes
Over the 2018/19 tax year, the personal tax allowance has been increased to £11,850, whilst the income limit of the personal allowance is still set at £100,000, with the personal allowance gradually being withdrawn by £1.00 for each £2.00 over the £100,000 limit. The basic rate for income tax is still set at 20%, whilst the limit has been increased to £34,500, and the higher rate is still 40% for those earning between £34,501 and £150,000.
If your income is greater than £150,000, tax is charged at a rate of 45%, although income between £100,000 and £123,000 is charged at 60%, following the gradual withdrawal of the personal allowance. For partners that cannot claim the married couples allowance, they are able to transfer some of their individual tax allowance over in order to save on some tax, although this is not available for anybody paying the higher rate of tax.
Where dividend tax is concerned, the initial £2000 of income through dividends is tax-free in the 2018/19 tax year, whilst dividends above this amount will be charged at 7.5%, 32.5% or 38.1%, dependant on the income tax rate of the dividend receiver.
There are many taxes involved with property transactions, and whether you are an investor or simply buying/selling your home, you are sure to need to pay tax charges. There have recently been changes to some of the taxes relating to property, and here are some of the changes that you need to be aware of as a property buyer or seller.
Capital gains tax – the allowance for capital gains tax has increased to £11,700 for the year, although there are ways to get around paying too much tax. You could look into transferring assets over to your partner that pays a lower rate of tax, or you could look into deferring selling assets until the next tax year.
Main residence nil rate band – the allowance for the main residence nil rate band has also increased for the 2018/19 tax year, now set at £125,000. The inheritance tax nil rate band is set at £325,000, meaning that the total inheritance nil rate band for individuals could be £450,000 for the tax year, increasing in the following year to £500,000.
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About Javeed Baig
Javeed Baig is a senior accountant and managing director of Gower Accountancy, a Leicester based accountants who provide their services to a range of sectors from doctors and dentists to the motor trade. They have built a great reputation on their high quality personal and professional service.