2019 UK New Year Tax Changes - Dispatch Weekly

With the new tax year starting this month, everyone is looking to see how the changes will affect their net income.

The new tax changes that came into effect at the beginning of this month will see 32 million people in the UK with a lower income tax bill compared to 2015-16. Here we look at some of the big changes that will affect the most people over the next year.

National Living Wage 

Everyone who is 25 and over, and not in their first year of an apprenticeship, is legally entitled to at least the National Living Wage. For those who are under 25, the National Minimum Wage applies. As you can see below, there have been significant increases in each of the bands in the latest budget.

Changes to The Personal Allowance

Previously the Personal allowance was £11,850 and has now been increased £12,500, meaning you don’t have to pay income tax on earnings below this threshold. Due to this change, a basic-rate taxpayer will take home £130 more in 2019-20 compared to in 2018-19. The aim of the Government was to increase the personal allowance to £12,500 by 2020-21 and hence they have achieved this a year early. The goal of this increase was to maintain a higher rate threshold of £50,000 by the same period (With the basic rate limit being the remaining £37,500). This will mean that from 2021 onwards, the Personal allowance and basic rate limit will be indexed to the Consumer Price Index for the UK (a measure of inflation) for the foreseeable future.

Universal Credit allowance increase

Working parents and those with a disability will be able to earn an extra £1,000 a year before their Universal Credit starts to reduce. This means that about 2.4 million families will be able to save an extra £630 per year on their current tax bill.

Allowance for New Enterprise has been extended

The NEA (New Enterprise Allowance) is a program that mentors, supports, and gives funds to help benefit claimants to launch new business ideas. It particularly targets those who have been unemployed for a significant amount of time. The allowance can give up to £1,274 over a 26-week period to aid the financial burden of starting a new business. Today, nearly 120,000 businesses have been launched through the NEA since 2011. The April funding will continue this program for another 2 years with 30,000 new mentoring places.

Changes to Access to Work

The program is increasing an extra £2,000 per year, people will be allowed to claim up to £59,200 annually through the Access to Work scheme to help pay for additional help they need in the workplace. The aim of the scheme is to help employers to accommodate those with physical and mental disabilities back into the workplace. The funding aims are to improve adaptations, assistive technology, transport, and interpreters in the workplace.

Changes to Inheritance Tax

The new rules will also see an increase in the amount a deceased homeowner can leave to their family. The basic tax-free allowance remains at £325,000 but there is an increase in the additional property rate from £125,000 to £150,000 to bring the tax-free total to £475,000. The aim is to increase the rate to £500,000 by next year. With assets passed between couples being tax-free, this means that the overall allowance for a married couple will increase to £1 million. Inheritance tax

It is estimated that the Treasury will take over £7bn in inheritance tax by 2023. The tax receipts from inheritance tax have been steadily increasing over the years with rapidly rising house prices resulting in thousands of people now being over the threshold.

Changes in Buy to Let

One of the biggest changes in recent tax reforms has been the continued decrease in the relief on Buy-to-let property owners. In previous years landlords were able to claim the interest paid on their mortgages as a business expense to write off against their tax bill. In 2019/20 this will become ¼ of the amount before being eliminated completely the following year. This has had a significant negative impact on the market with lower profitability – coupled with the uncertainty of Brexit – leading many to look for an exit. There has also been a crackdown on short term holiday letting, such as Airbnb. Previously there was a £7,000 allowance under the rent-a-room relief however this now only applies to spare rooms in a property that the landlord lives in.

Overall the changes look to clamp down on certain loopholes which have been very profitable in recent years. It also looks to address the issue of income inequality in the UK that has been mounting in recent years.