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What’s changing in the 2018-19 tax year?

The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek independent advice. Tax rules can change in future. Their effects on you will depend on your individual circumstances.

Here’s our guide to some of the changes in the next tax year that you might want to be aware of.

Click to toggle accordion What you’ll learn:

How some of the tax allowances and rates are changing.

How the Dividend Allowance is changing.

Who the changes will affect.

A range of new tax allowances and rates usually comes into effect when one tax year finishes and a new one begins.

It’s worth understanding what the major changes are so you can make the most of the reliefs available to you. Here’s a guide to some of the biggest changes coming into effect in the 2018-19 tax year, which runs from April 6 2018 to April 5 2019.

Remember that this is just a guide to some of the changes for the 2018-19 tax year, and that tax rules and allowances can and do change over time. Their effect on you depends on your individual circumstances, which can also change.

Dividend Allowance

The Chancellor of the Exchequer Philip Hammond announced in the Spring Budget 2017 that the Dividend Allowance would reduce from £5,000 to £2,000 from 5 April 2018.

Any dividend income that investors earn above the £2,000 allowance will attract tax at 7.5% for basic rate taxpayers, while higher-rate taxpayers will be taxed at 32.5%, and additional rate taxpayers at 38.1%.

This may impact on shareholders of private companies paying themselves in the form of dividends, for example, rather than salary. Investors with portfolios that produce an income in the form of dividends of more than £2,000 a year, which are held outside ISA or pensions, will also be affected by the reduction in the allowance.

Pension Lifetime Allowance

The Lifetime Allowance rises from £1m to £1.03m in the 2018-19 tax year. This is the maximum total amount you can hold within all your pension savings without having to pay extra tax when you withdraw money from them.

If the total value of your pension savings goes over the Lifetime Allowance, any excess will be taxed at a rate of 25% in addition to your marginal rate of income tax if drawn as income, or 55% if you take it as a lump sum.

Personal Allowance

The tax-free personal allowance is the amount of income you can earn before you have to start paying income tax. All individuals are entitled to the same personal allowance, regardless of their date of birth.

In the 2017-18 tax year, the personal allowance was £11,500, and it rises to £11,850 in the 2018-19 tax year. This means you can earn £350 more in the 2018-19 tax year than in the previous tax year before you start paying income tax.

However, bear in mind that the personal allowance is restricted by £1 for every £2 of an individual’s adjusted net income above £100,000.

A spouse or civil partner who isn’t liable to income tax above the basic rate may transfer £1,185 of their unused personal allowance in the 2018-19 tax year, compared to £1,150 in the 2017-18 tax year to their spouse or civil partner, as long as the recipient isn’t liable to income tax above the basic rate.

Various other allowances and rates are also changing in the 2018-9 tax year. These include the married couple’s allowance, income tax rates and capital gains tax.

The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek independent advice. Tax rules can change in future. Their effects on you will depend on your individual circumstances.

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