The Tax Changes that take effect each April in UK



Low levels of tax collection in the developing countries, despite the fact that a series of tax administration reforms have taken place, could partly be due to problems linked to “acts of omission and commission,” by political leadership.



by Victor Cherubim

( April 9, 2018, London, Sri Lanka Guardian) The month of April according to Geoffrey Chaucer, the English poet, “bring showers of sweetness and the melody of the first bird song”. If you are in Japan, it is Cherry blossom time. However if you are relatively well off in England, the chances are that from 6 April 2018, the Chancellor of the Exchequer, Philip Hammond, would have made you even slightly richer. But if you are on Benefit, you would be more than £300 a year worse off, as the Benefits Freeze continues.

Tax changes in UK always take effect on the 6 April every year. Dozens of tax changes come into force each year on this date. Most will go unnoticed to all but the Accountants, but a few, (if you can quantify what a few means in practice) would see a major and an immediate impact on the personal finances of millions of people.

The most noticeable tax changes

1. Personal Allowance threshold will increase in 2018/19. If existing rules apply the personal allowance and basic rate Tax band will increase by Consumer Price Index (CPI) of 3% giving personal allowance for individuals of £11,850 (£11,500 in 2017) a rise of £29 per month or £350 per annum. It is the amount of income you don’t have to pay tax on, with a higher rate Tax band threshold of £46,450.
2. Capital Gains Tax – Similarly if existing rules apply, the annual CGT tax exemption will increase by CPI of 3% from £11,300 in 2017/18 to £11,700 in 2018/19.
3. Inheritance Tax Threshold – IHT is applied when passing on an estate. A main residence is classed as Nil Rate band for IHT purposes. There is no increase in the main exemption which was introduced in 2017/18, but the amount increases for deaths on or after 6 April 2018 to £125,000. This Nil Rate band applicable for each spouse of a married couple has been at the same level or £325,000 since 2009/10 and now frozen up to 5 April 2021.
4. Dividend Allowance which was introduced at £5000 in 2016/17 is to be reduced to £2000 for 2018/19 onwards. This would mean an additional tax liability of £225 for a basic rate taxpayer.
5. The rules for calculating profits from self employed business and property income have changed since 2017/18. For self employment business the cash basis (i.e. income and expenses on amounts received and paid, rather than relating to amounts due) can apply for a turnover of £150,000 rather than £85,000 as before. While for property business the cash basis will apply automatically for income up to £150,000.
6. The restrictions on the treatment of Mortgage Interest on Residential Property Letting for 2018/19, the change is that only 50% of any interest paid will be fully deductible from rental income. Relief for the other 50% will be given as a basic rate tax reduction. Higher and Additional Rate taxpayers will notice an increased tax liability. It could also affect basic rate taxpayers in some circumstances as only the deductible interest is taken into account for calculating the taxable income.
7. State Pension will go up by 3% or £3.65 per week for those in retirement.
8. The lifetime savings Allowance for Pension Savings (LTA) will increase by CPI to the September preceding the Tax year, thus it will be 3% or an expected increase from £1,000,000 to £1,030,000.
9. There are increases in the National Minimum Wage (NMW) and the National Living Wage (NLW) rates to be paid to employees. From April 2018 NMW is increased to £7.38 per hour for workers aged 21-24 and to £5.90 per hour for aged 18-20. For NLW for employees aged 25 and over is increased from £7.50 to £7.83 per hour.
10. Last but by no means the least, the contributions paid by employers and employees. Class 2 National Insurance Contributions (NIC) were expected to be abolished from April 2018. This has been deferred for a year pending a further review.

Tax is a way of ameliorating disparity in wealth

Redistribution of income and redistribution of wealth are respectively the transfer of income and of wealth from the wealthy to the less wealthy. It is a generally accepted way from some individuals to others by means of a social mechanism.

Among these mechanisms is taxation which is considered the most effective, in some countries, the most cost efficient method of collection. Other ways of redistribution of wealth is welfare services, public service, land reform, monetary policies, charitable giving and undesirable of all is confiscation.

Concentration of wealth in the hands of a few can be reduced through wealth taxation. But we see in Sri Lanka, the few who are the most wealthy, and wield the most power have over time decided and have through default been allowed to distribute their wealth through patronage, called “personal wealth management.”

Eric Rakowski, Berkeley Law School in “Can wealth taxes be justified” states:
“An annual wealth tax, not income tax can be at the same time viewed as a fair charge for the many benefits the Government bestows on those with the biggest wallets. If properly targeted, it might be thought to yield important economic and political gains as well, by encouraging people to use their assets productively and by checking the accumulation of vast fortunes that can warp markets and corrupt democratic politics.”

Low levels of tax collection in the developing countries, despite the fact that a series of tax administration reforms have taken place, could partly be due to problems linked to “acts of omission and commission,” by political leadership.

Richer countries collect about 33% of their GDP in taxes while less income economies at best collect around 7-8%. The modest level of collection in many low income countries is, in my opinion, due to investment strangulation. This is putting national economic development at risk.

Things that can be done
First, the system of collection of taxes must be perceived as fair.
Second, the system must be affordable.
Third, it has to focus on transparency.

Implementation relies on political commitment.

One of the lessons learned after much research, is that investing in a numbered Swiss bank account is not the creation of wealth. Many around the world have found out to their disappointment, call it heartache, the money is lost forever, if the number cannot be traced.