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10 tax changes affecting investors in 2018

With new tax rules proposed for April, we highlight the essentials for investors.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

As tax rules are forever changing, 2018 brings more of the same.

We look at ten important changes for investors before they come into effect on 6 April this year.

1. Dividend allowance cut

The dividend allowance will fall from £5,000 to £2,000.

Basic rate taxpayers who receive dividends over the allowance will pay 7.5% tax, with higher and additional rate payers paying significantly more. This will hurt anyone paid through a tax-efficient combination of salary and dividends.

It will also hit investors with substantial share portfolios held outside an ISA, and will make it even more important that they make full use of their ISA allowance.

Find out more about our Stocks & Shares ISA

2. Personal allowance increases

The amount you can earn before paying tax rises from £11,500 to £11,850. It’s the latest step in a planned rise to £12,500 by 2020.

3. Higher rate tax threshold increases

The threshold at which you start paying 40% tax will rise from £45,000 to £46,350, unless you are a Scottish taxpayer (see below). The government currently plans to raise it to £50,000 by 2020.

Are you caught in a 60% income tax trap?

4. Scottish tax changes

From 6 April, it’s proposed there will be five tax bands for Scottish taxpayers.

Earnings Tax rate in Scotland
Personal allowance Up to £11,850 Tax free
Starter rate £11,850 - £13,850 19%
Basic rate £13,850 - £24,000 20%
Intermediate rate £24,000 - £44,273 21%
Higher rate £44,273 - £150,000 41%
Additional rate £150,000+ 46%

Scottish government overhauls income tax – what does it mean for pensions?

5. Marriage allowance rises

The allowance will rise from £1,150 to £1,185, enabling married couples to transfer this portion of their personal allowance from the lower earner to the higher earner, in order to save tax.

To qualify for the scheme, the lower earner must have an income below the personal allowance and the higher earner must be a basic rate taxpayer.

6. Pensions lifetime allowance rises

Since 2010, the pension lifetime allowance has been gradually cut from £1.8 million to £1 million. In April it will rise in line with inflation to £1.03 million.

Download our lifetime allowance factsheet

7. State Pension rises

The pension will rise in line with last September’s inflation figure of 3%. For those on the full ‘flat rate’ pension this will add £4.80 a week, or £249.60 a year. For those who reached State Pension age before April 2016, the full Basic State Pension will rise to £125.95 a week.

This will be a welcome change for retired households struggling with rising costs, particularly given that ONS figures in December showed that retired households face faster inflation than their working counterparts.

Go to our quick guide to the State Pension

8. Junior ISA allowance rises

The Junior ISA allowance will rise with inflation from £4,128 to £4,260. The JISA has been in place since 2011, and the allowance has risen annually since then from £3,600 to £4,260.

It’s an increasingly popular way to save for children, because savings and investments can grow free from UK income tax and capital gains tax. In 2017, we saw the 100,000th HL JISA opened. Anything paid into a JISA becomes the property of the child, though they will not be able to access it until they are 18.

Find out more about our Junior Stocks & Shares ISA

9. LISA transfer rules change

At the end of the 2017/18 tax year, the rules regarding transfers from Help to Buy ISAs to Lifetime ISAs will change, so it’s worth considering a transfer before the new tax year.

Under the current rules, you can transfer anything built up in the Help to Buy ISA before April 2017 into a LISA, along with any interest accrued on this amount since 6 April 2017, without using any of your 2017/18 allowance. You can then transfer anything subscribed since then using your 2017/18 allowance, top it up to £4,000 and get the government 25% bonus on the full amount. From the next tax year, all transfers will use up that year’s allowance. Before transferring make sure you will benefit and not incur excessive exit penalties. Any money withdrawn from a LISA other than for an eligible house purchase or after age 60 is normally subject to a 25% government withdrawal charge, which means you could get back less than you put in.

Find out more about transferring to a Lifetime ISA

10. Auto-enrolment minimum contributions increase

At the moment minimum contributions are set at 2% of your qualifying earnings (with at least 1% from your employer), but from 6 April they will rise to 5% (with at least 2% coming from your employer).

This is actually the first of two increases, because in April 2019, they will go up to 8% (with at least 3% from your employer).

As you can see tax rules can and do change, any benefits will depend on your circumstances. This article is not personal advice, so if you are at all unsure of the suitability of any investment please seek advice. The value of investments will rise and fall, so you could get back less than you put in.

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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