April Tax Changes

From next month the new tax year means important changes to tax rules. With only a month to go now is the time to put your affairs in order and ensure you are not hit hard by changes in a wide range of areas. 

Every 6^th April, the start of the tax year brings with it new rules. The basic tax band reduces by 2% to 20% and the 10% band is abolished entirely. The 40% rate (which is in effect 41% when national insurance is added) remains the same. It makes sense to receive bonuses after 6^th April so they are subject to 20% not 22% tax, for some people, where it is possible.

 It may be worth looking at the structure of a business too and whether it is sensible to incorporate as a limited company or not. Businesses which pay family members dividends will be subject to new rules which are being introduced after the Government lost a case called “Arctic Systems” in the House of Lords and therefore decided to “win” the case for the future by changing the law. If only one family member does all the work for a limited company and other family members are paid dividends for their shareholdings then the highest tax rate applied to the working member is likely to apply. Some businesses may choose to liquidate before 6^th April in order to take out capital from the business before the change rather than extract it as wages or dividends afterwards. However, advice should be sought on the possible capital gains tax consequences.  

The change to the capital gains tax regime for business owners from 6^th April has received much publicity with many being potentially at risk of an increase in CGT rate for those selling businesses from 10% to 18%. However the first £1m lifetime gains are taxed at 10% following intense lobbying since the 18% rate was first announced. It therefore makes sense for all family members who own a business to make use of their own £1m lifetime allowance where possible and some companies will be sold quickly before gains exceed that level. For those with buy to let properties however, a reduction in the standard (non-business sale) 40% rate to 18% CGT is a major and much welcome reduction in liability.  

Anyone who is “non-domiciled” for tax purposes will have already read about the major changes in force from 6^th April in this area. If they live and work here and pay tax in the UK they will either now pay tax in the UK on their foreign income (in addition to tax on their UK income as now) or they must pay a £30,000 a year charge. Some people have already left the country to avoid the new rules. Given that HMRC has just paid over £100,000 to buy data about trusts stolen by an employee in Luxembourg , now may be a good time to ensure your own affairs are properly in order.  

The inheritance tax free band rises to £312,000 and couples now have a doubled joint nil rate band where they are married (or for gay couples are civil partners) but not otherwise. Finally as in all tax years, it is wise to make full use of pension contribution rules to ensure maximum relief from tax.