Firstly, thanks to those eagle-eyed readers who have pointed out…
Maximising ISAs is an increasingly important tax planning area for everyone. ISAs are especially useful for those looking to produce income because the income is non-reportable for tax purposes. Of particular relevance, is the fact that the dividend allowance (introduced in 2016-17) has fallen from £5,000 to £2,000 which may mean an increasing tax bill for many people with reasonable sized shareholdings. Using an ISA will shelter dividends from tax (7.5% over £2,000 for basic rate tax payers and 32.5% for high rate tax payers). Growth on ISAs is free from Capital Gains Tax (CGT) and this is again another benefit because you will have more flexibility with your holdings within an ISA which will enable you to make switches without reference to Capital Gains Tax.
The maximum ISA investment for the 2018-19 tax year is £20,000 per person. If you have an existing share portfolio or investment funds which are not in an ISA then these assets have to be crystallised before moving into the ISA wrapper and it`s important at this stage to consider any Capital Gains Tax before transacting a bed and ISA.
Taking up an ISA may be particularly important for couples because the new ISA rules (effective from 6th April this year) are more generous. Since April 2015, investors have been able to pass on their ISA to their spouse or civil partner on death by being granted a one-off extra allowance called an Additional Permitted Subscription (APS). The value of this allowance was based on the value of the ISA on the date of death which did not take account of any growth between the date of death and the granting of probate. This meant that the surviving spouse may, in some circumstances, have been unable to wrap all the probate proceeds in an ISA. From this tax year, the APS will normally be the value of cash or investments passed on or the value of the ISA at the date of death, whichever is higher.
The personal allowance has risen by £350 to £11,850 in this tax year and the basic rate limit is now £34,500. The zero starting band for savings will remain the same as well as the £50,000 for child benefit tax charge and £100,000 threshold for phasing out the personal allowance. £150,000 will remain the starting point for additional rate tax and will, once again be frozen for this tax year. Don`t forget to claim married couples allowance (if there is a spouse born before 6th of April 1935) or the married couple’s transferrable tax allowance (subject to certain qualifications). Please note you can`t claim both allowances.
The nil rate band remains frozen at £325,000 since 2009 and will remain so until at least April 2021. The Main Residence Nil Rate Band (MRNRB) which was introduced last tax year, will increase by £25,000 this tax year to £125,000 and is currently set to increase by £25,000 each year until the tax year 2020/21 when it will reach £175,000. Although this new tax band is useful, UK property has risen by around 37% since 2009* and as a consequence in 2016/17 IHT raised more than twice the tax revenue than it did in 2009/10.
The contribution thresholds will rise this year marginally, whilst there is no change in the main employee and employer rates . Class 2 (for the self-employed) will be £2.95 per week for 2018-19 and then will disappear completely for the tax year 2019/20.
*source – Nationwide building society