Tax Allowances- Your 2018 Guide

Tax Allowances- Your 2018 Guide

Tax rates and rules are constantly changing. Tax Allowances- Your 2018 Guide, will help you navigate and recap on the most important tax allowances. 

Savings and Investments  

Cash ISAs are available to online savers over the age of 16, you can save a maximum of £20,000 with any interest earned being tax-free. The threshold remains the same in the 2018/19 tax year.

Equity ISAs are available to online savers over 18, they are investment based products so are riskier than cash ISAs. You can invest in shares of companies, or in funds, or in investment trusts. Again, the 2018/19 tax year the saving limit is £20,000. 


​​​​Pension Allowance

The Annual Allowance is the total amount of money you can pay into your pension pot every year, including contributions from your employer into a defined benefit or defined contribution scheme tax free.

The Annual Allowance- This dictates the contributions you can make in any given tax year. 
The current allowance is £40,000 (other rules may affect this figure):

  • Personal contributions are limited to your annual salary to a maximum of £40,000
  • Additional contributions may be allowed if you have unused annual allowances from previous tax years
  • This is restricted by the salary in the given tax year
  • Employer contributions are not restricted by salary, but are still restricted by annual allowance and 'carry forward' rules 
  • If you have flexibility accessed from your pension you can only contribute £4,000 annually

For additional rate tax payers earning over £150,000, the government introduced Tapered Tax Allowance effective from April 2016. Estimated to affect 130,000 workers, this essentially whittles away the annual limit by £1 for every £2 of adjusted income between £150,000 and £210,000. 

The lifetime allowance is the maximum amount of pension savings you can build up without a tax charge. This figure currently stands at £1million, but from April 2018, it will rise to £1,030,000. This is the first rise of lifetime allowance since 2006. Savers who exceed the allowance are charged either 25% tax on the excess if they withdraw the money as income, or 55% if it is withdrawn as lump sum. For more information on lifetime allowance read our blog 'Insight: The Lifetime Allowance'.

State Pension

Since 2010, the State Pension has risen annual by the highest of inflation, earnings and growth or 2.5% under the 'triple- lock' guarantee. 

The 3% rise applies to both the new flat rate State Pension and the old basic State Pension in 2018. 

This means those on the flat rate will see weekly earnings rise from £159.55 to £164.35. Those on the basic State Pension will get £125.95 up from £122.30. 

Tax and Earnings

Personal allowance is the amount of money you can earn before you start paying income tax. It will rise with inflation from the current £11,500 to £11,850 in April 2018. 

The government has committed to raising the Personal Allowance to £12,500 by 2020. 

For higher rate taxpayers, the income tax threshold will rise from £45,000 to £46,350 in April 2018. 

The current inheritance tax-free allowance for individuals is £325,000, for married couples/ civil partners is £650,000. 

  • For the 2018/19 there's an additional allowance for £125,000 per person
  • In 2019/20 it will rise to £150,000 and
  • Finally, £175,000 in 2020/21

Dividend allowance

The tax-free Dividend Allowance will be cut from £5,000 to £2,000 in the new 2018/19 tax year. 

The measure will affect employees and directorates of small businesses who might remunerate themselves partly through dividends rather than salary. 

Any dividends income above the current £5,000 allowance is taxed at the following rates: 

  • Basic rate taxpayer- 7.5%
  • High rate taxpayer- 32.5%
  • Additional rate taxpayer and trustees- 38.1%

National Insurance

There are two type of National Insurance Contributions for the self-employed.
Class 2 of £2.85 per week are payable for those whose profits are £6, 025 or more a year.
Class 4 payments are paid by those whose profits are £8,164 or more a year.
Class 2 payments remain until 2009, Class 4 payments rise from 9% to 10%. 

Marriage Allowance

Around 4million couples are eligible for the Marriage Allowance allowing a civil partner or spouse to transfer 10% of their personal allowance to their partner. As the Personal Allowance will rise to £11,850 in the 2018/19 tax year, this means £1,185 can be transferred from the lower-earning partner resulting in a £237 tax break. 
Further, the Marriage Allowance has also been recently been extended, allowing surviving spouses to claim the tax break on behalf of deceased partners. 

VAT Threshold

Consumers pay VAT on several goods and services. If you're self-employed or have a UK business turnover above the current £85,000 VAT threshold, you need to register with HMRC. The 20% tax charges need to be passed on to the tax authority. The chancellor confirmed that the VAT threshold will remain the same at £85,000 in the new tax year. 

The end of the tax year is fast approaching.
Book a complimentary tax planning review before Thursday 5th April 2018, and let us guide you through the taxation process- it could transform your finances. 

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About the Author

By Nigel Reeves: My mission is to provide the quality, honest & jargon-free pension advice that people need to secure the retirement they deserve. At home, I'm a family man and an active supporter of grassroots sports!

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