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Rates and allowances

ICAEW Tax Faculty provides analysis of the announcements relating to tax rates and allowances in the 2018 Budget.

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The government has published a table of rates and allowances (Annex A to the OOTLAR). The Tax Faculty will be publishing an updated version of our tax rates and allowances summary. 

Personal allowances

The government announced at Budget 2018 that it would fulfil its manifesto commitment to increase the tax-free personal allowance to £12,500 and the higher rate threshold to £50,000. The increases will be effective from April 2019, a year earlier than expected. The cost to the Exchequer of this change is very considerable at £2.79bn.

The tax-free personal allowance in 2018/19 is £11,850. This will increase to £12,500 for 2019/20. The allowance will remain at this figure in 2020/21 and then increase by the Consumer Prices Index (CPI).

Higher rate threshold

The 20% basic rate income tax band will increase to £37,500 for 2019/20. As a result, the higher rate threshold (ie, the personal allowance plus the basic rate band) which is £46,350 in 2018/19 will be £50,000 in 2019/20. The threshold will remain at this level in 2020/21.

In summary:

Year Standard personal allowance 
Basic rate band 20% on income  Higher rate threshold  Additional rate of 45% on income over 
2018/19
 £11,850 
£34,500 
 £46,350*   £150,000
2019/20
  £12,500 £37,500   £50,000*   £150,000

* A lower higher rate threshold applies to earned income of Scottish taxpayers

Dividend allowance

No change was announced to the tax-free dividend allowance of £2,000 (more correctly described as a dividend nil rate band) or to the taxation of dividends. The rates remain at 7.5%, 32.5% and 38.1% depending on the level of income. 

National insurance

The national insurance contributions (NIC) earnings limits have been uprated. 

For employees, the lower earnings limit will increase from £116 to £118 per week from April 2019. The primary and secondary thresholds will increase from £162 to £166 per week. The upper earnings limit will increase from £892 to £962.

For the self-employed, as announced in September 2018, class 2 NIC will not be abolished during this parliament as previously planned. The rate of class 2 increases to £3.00 per week from April 2019 (2018/19: £2.95) and the small profits threshold increases to £6,365 per annum from April 2019 (2018/19: £6.205). The lower and upper profits limits for class 4 NIC will increase from April 2019 to £8,632 (2018/19: £8,424) and £50,000 (2018/19: £46,350) respectively. 

Capital gains tax

The CGT annual exemption for 2019/20 will be £12,000 (£6,000 for most trustees). This is an increase from £11,700 for 2018/19. There are no changes to the rates of CGT.

Property taxes

See the sections on Property tax for annual tax on enveloped dwellings (ATED) and Stamp taxes for stamp duty land tax (SDLT).

Pensions

The lifetime allowance for pension savings will be £1,055,000 in 2019/20 (2018/19: £1,030,000).

Corporation tax

The rate of corporation tax is currently 19%. As previously announced it will be reduced to 17% from 1 April 2020.

VAT

The VAT registration threshold will remain frozen at £85,000 for two further years, until April 2022.