During the covid-19 pandemic the government announced a number of schemes to help people financially who were suffering a loss of income. One of those schemes was the Self Employment Income Support Scheme (SEISS) and here we are addressing the question – ‘Is the SEISS payment taxable?’ Continue reading Is the SEISS Payment Taxable?
Inheritance Tax Increase 2020/21
In 2015 the Chancellor of the Exchequer, George Osborne, announced a major change in Inheritance tax which added on an extra element for family homes which were left when someone died. This amount was tapered starting in 2017 and the last part of that increase is happening in 2020/21.
In addition to the standard rate of Inheritance tax relief, which sits at £325,000, an allowance for family homes that are passed on to direct descendants (children and grandchildren) was also introduced which started at £100,000 in 2017 and increased to £175,000 for the tax year 2020/21.
So this tax year (2020/21) is the final year of the major increases to the property portion of the allowance, that finish up with a total allowance of £500,000.
The Inheritance Tax Allowance can be passed between couples, so that when the first partner dies the unused part of that allowance is passed on to the surviving spouse. When the second spouse dies the allowance can effectively be doubled.
For example spouse 1 dies and does not use any of his Nil rate band (perhaps he passes everything to his spouse and has not made any bequests to anyone else).
He can then pass his £325,000 allowance on to his wife. She will then have an allowance of £650,000.
The same thing can happen with the property part of the allowance that has not been used. This means that it is possible for the surviving spouse to have an allowance of up to £1m including the property allowance.
Obviously you need to check all of your details with your tax adviser to see what the situation is for your individual circumstances.
Self Employed NI Rates 2019/20
Although not technically a tax allowance, we thought it was worth covering what the rate of National Insurance contributions are for self-employed people for the tax year 2019/20.
Self-employed NI rates have been a bit confusing in the past few years as changes were proposed to scrap Class 2 NI and subject people only to Class 4 NI – however, these changes have been scrapped (for the present) so the two tier approach still applies.
If you are self-employed then the rate of National Insurance that you pay depends on your profits for the tax year. There are effectively 4 different tranches that trigger different rates of NI.
Profits of less than £6,365 for 2019/20
If your profits are less than £6,365 then you do not need to pay any National Insurance contributions. However, you may think it worthwhile to pay voluntary Class 2 contributions if you are not already covered for these in any other capacity as this may increase or entitle you to certain benefits including additional state pension or Maternity Allowance.
Profits between £6,365 and £8,632 for 2019/20
If your profits are between £6,365 and £8,632 then you only have to pay Class 2 NI contributions which are at a flat rate and not based on the amount of profits. Most people pay these through the self-assessment tax return.
For 2019/20 Class 2 NI contributions are £3 a week – so £156 for the year.
Profits on or over £8,632 for 2019/20
If your profits are £8,632 or above then you will also need to pay Class 4 NI as well as Class 2 NI payments. Class 4 NI is charged at 9% of profits between £8,632 and £50,000.
Profits over £50,000 for 2019/20
If your profits from your self-employed business are over £50,000 then you will need to pay Class 2 NI of £3 a week, plus Class 4 NI for the earnings between £8,632 and £50,000, plus 2% on earnings over £50,000.
Changes to Rent a Room Rules
There are some changes coming to the rules for Rent a Room relief in 2019.
Rent a room relief gives an exemption from income tax on profits of up to £7,500 to individuals who let furnished accommodation in their only or main residence.
Rent a room relief provides income tax relief for those letting out furnished accommodation. It was introduced in 1992 to encourage individuals to make spare capacity in their homes available for rent. The government intended this to increase the quantity and variety of low-cost rented accommodation, giving more choice to tenants and making it easier for people to move around the country for work.
The changes that are being introduced on 6th April 2019 are intended to make sure that the tax relief is used as it was intended, to encourage people to use their spare rooms to provide additional accommodation for people.
The change that is being introduced is that at some point during the period when the room is being rented out, the person in receipt of the income from the lodger must be residing in the property while money is being received for the extra room(s).
This means that you cannot claim the relief if, for example, you are on holiday for the whole of the period when the room is being rented out.
One example given is that if you rent out rooms in your home during the Wimbledon tennis championships, you must be resident in your home for at last part of that time.
So the additional test is essentially a ‘shared occupancy’ test and if the person in receipt of the income cannot satisfy this test then they will not be entitled to claim the Rent-a-Room relief.
You can find further details of the changes here.
Capital Gains Tax (CGT) Allowance 2019/20
The Capital Gains Tax (CGT) annual exempt amount is the amount of gains that you are allowed to make before paying tax on those profits.
Capital Gains Tax is paid when you sell or dispose of assets such as personal possessions worth more than £6,000, property that is not your main home, shares or business assets.
CGT is based on the amount of profit that you have made, not on the selling price.
Each year the CGT annual exempt allowance is increased in line with the rise in the Consumer Prices Index, rounded up to the next £100.
In 2018/19 the CGT allowance was £11,700.
In 2019/20 this will be increasing to £12,000.
The law also provides that the annual exempt amount available to most trustees of settlements is one half that due to individuals and so this will be £6,000 for the tax year 2019/20.
For details of all current tax rates that we monitor, please see this page.
2019 Personal Allowance
In the 2019 Budget today Philip Hammond announced changes to the personal allowance for 2019/20.
It had previously been announced that the plan was to increase the tax free personal allowance to £12,500 and the higher rate allowance threshold to £50,000 from April 2020.
There had been rumours prior to the budget that the Chancellor would have to delay the increase in the personal allowance in order to fund increases to the NHS.
Mr Hammond commented on this himself and said that he had been advised that the least painful way to add some funding to the NHS promises was to do exactly that.
However, he also said that this was not his idea of ending austerity (which was part of the budget headlines) and so he would not be doing that. In fact, he said, he would actually bring forward the increases in the personal allowance levels by a year and implement those increases from April 2019 instead of April 2020.
So the personal allowance from April 2019 will be £12,500 which is increased from £11,850 for 2018/19, an increase of £650 and a saving of £130 a year for basic rate taxpayers.
Class 2 NI Change Shelved
In 2016 the government announced a change to the calculation of self-employed NI contributions. This change meant that Class 2 NI contributions were going to be scrapped and other arrangements were put into effect, particularly for lower earning self-employed people.
You can find further details of the proposed change here.
The change to Class 2 NI was subsequently postponed and was going to be introduced in the tax year 2018/19.
However, it has now been announced that the scrapping of these NI contributions has been cancelled and the current arrangements will remain in place for the foreseeable future.
The current rates for Self Employed National Insurance contributions are as follows:
| Class | Rate for tax year 2018 to 2019 |
|---|---|
| Class 2 | £2.95 a week |
| Class 4 | 9% on profits between £8,424 and £46,350 2% on profits over £46,350 |
What Does Tax Code NT Mean?
Tax Code NT
Each person in in the UK is assigned a tax code for each tax year, whether that be at the beginning of the tax year or further into it, when a tax code may be changed.
In fact you may be given different tax codes for different earnings sources.
There are various different codes – some have numbers and letters and some just consist of a letter or letters and NT is one of those.
The tax code NT means essentially that no tax is due on those earnings. The company/entity paying you will have been instructed not to deduct tax from the earnings by HMRC and they may or may not know the reason for this.
There may be different reasons for being given this tax code and if you have this tax code then it may be because of your own personal circumstances so you can always call the tax office to find out why if you are unsure.
As an example, NT can be used as a tax code for people who have non-resident status or for people whose income would be classed as self-employed and hence taxed on their own tax return. It may also be applied in some cases for Armed Forces pensions (but not all situations).
How Much do I Need to Earn to Pay 40% Tax?
Currently the higher rate of tax for those who earn a certain amount stands at 40%. So you may wonder how much do I need to earn to pay 40% tax?
Tax Code
The way to work out this is to firstly take a note of your tax code which will dictate how much personal allowance you have for that tax year. For the year 2018/19 the standard personal allowance is £11,850 which will give you a tax code of 1185L.
If you don’t have that tax code then you need to take the tax code you have and multiply it by 10 to give you your personal allowance.
20% Tax Band
Next add on to that figure the amount that you can earn on which you pay 20% tax. You can see the current rates for the relevant tax years here, but for 2018/19 the 20% tax band amounts to £34,500.
So you add your personal allowance (let’s say you get the full rate of £11,850) to the 20% tax band (£34,500) and you get a total figure of £46,350.
This means that once your earnings are over £46,350 for the tax year (in this example 2018/19) then you will start paying tax on those earnings at the rate of 40%.
Note that you only pay tax at 40% on earning over that figure, not on the whole amount.
Additional Tax Rate
In addition to that there is a 45% tax rate on earnings over £150,000 (at which point you don’t get a personal allowance) so that would be the point at which you would start paying tax at what is know as the additional rate.
Obviously everyone’s circumstances are different and you should also take account of other benefits in kind and additional earnings.
This is just to give you a guide number of when to think about your entry into a higher tax bracket and what that could mean to you.
It may be worth speaking to a financial adviser to get any advice you need to take account of this additional tax rate.
What Does Tax Code BR Mean?
If you have been given a tax code notice and you are wondering ‘what does tax code BR mean?’ then here is an explanation.
The tax code letter BR stands for Basic Rate. This means that any earnings that you get under the employment (or pension) that has that tax code (and you may have different tax codes for different sources of income), will be subject to tax at the basic rate.
For the tax year 2018/19 the basic rate of tax is 20%.
Tax codes often have a number before them and then a letter but in this instance, as the number refers to how much personal allowance you have, there is no number, just the letters BR.
Normally you will be given a personal allowance (£11,850 for 2018/19) which means that you can earn that amount of money over the tax year without being charged tax on it.
So, with a tax code of BR, that personal allowance will not be applied to the earnings from that source. It may well be that your personal allowance has been used up elsewhere (another job for instance or another pension source) so you cannot also apply it to this source of income.
So if for example you earn £1600 in a month then you will be taxed £320 (20% of £1600) for that month.
In fact even if you earn enough that your earnings would normally be taxed at a higher rate then you will still be taxed at 20% on this tax code and any adjustments will either need to be made once the tax code is changed or through your tax return.
The tax code BR differs from the code 0T in that if you are on 0T you will be charged higher rate tax if your earnings enter into that bracket.
It is possible that you have been given this tax code incorrectly (if you have been given it and you don’t have any other source of income for example). In which case you should get in contact with HMRC as soon as possible so that you don’t end up paying too much tax.
You can call HMRC on 0300 200 3300.