As individuals, most of us go through life largely unaware of the tax changes that come into play. Tax is handled by our employer or accountant – those who understand the intricacies of it. Each year, however, changes are made to the regulations around tax, and it’s worth being aware of these.
On 6 April 2018, changes were introduced that will affect both businesses and individuals in several ways. Those who ignore them could get caught out with a larger tax bill than expected, so we’re giving you a brief rundown of the changes to help you avoid falling foul of HMRC.
Individuals: Offshore trusts
Those with overseas trusts with UK beneficiaries should be aware that onward gift rules have changed. Now regarded as indirect distributions, these are no longer possible as a way to avoid tax implications.
It’s possible that those unaware of the change will unintentionally end up with tax consequences, so we strongly advise you to seek assistance from an accountant if you’re looking to undertake distributions and subsequent onward gifts this year.
Individuals: Non-UK domiciliaries
UK residents with a non-UK domicile status should be aware that residence in the UK for 15 of the past 20 tax years automatically makes them UK domiciled. This means that any worldwide assets they have become subject to UK tax charges unless placed into protected trusts.
If you think this may apply to your personal tax account, get in touch with a tax advisor to find out how you can mitigate the risk of accidentally incurring tax consequences. Similarly, if you believe you will become UK domiciled in the 2019/20 tax year, now is a good time to get your affairs in order to ensure your global assets are protected.
Individuals: Inheritance tax
A positive change in the regulations that affect individuals specifically is the increase in the Residential Nil Rate Band (RNRB), which relates to inheritance tax. An extra allowance was introduced in April 2017 that enables homeowners to use an additional tax-free sum against their main property, provided it’s left to their children or grandchildren.
As of 6 April 2018, the RNRB has increased from £100,000 to £125,000. In essence, this means a married couple could leave a tax-free total of £900,000 in assets to beneficiaries.
Businesses: Dividends
The big change for businesses as of 6 April 2018 is the dramatic reduction in dividend allowance. Each year, businesses have been able to award shareholders with £5,000 without tax charges; in 2018/19 this has decreased to just £2,000. Not only will this affect the income streams of investors, but it could also mean companies have a further £1,143 added to their annual tax bill.
Businesses: Income tax relief
Landlords will find themselves impacted by the changes in income tax relief, which – like the RNRB – were introduced in April 2017. The continued restriction in the amount of income tax relief available on mortgage interest payments sees the percentage decrease from 75 percent to 50 percent. The remainder can be used as a basic rate tax reduction. This will mean some taxpayers are paying a higher rate than before. In such cases, a chat with your tax accountant is advisable to ensure you fully understand the implications of the change.
