Understanding the tax changes taking effect on 6 April 2018

The end of the tax year is approaching, which means a number of changes are taking place for the start of the 2018/19 year. These will apply to many, from business owners to those with offshore trusts. We take a look at the key changes here.

Dividends

As of 6 April 2018, the dividend allowance is reducing from £5000 to £2000 per year. This not only affects business owners and those receiving work-related dividends, but also those with investment portfolios.

Companies are advised to distribute dividends before the end of the current tax year in order to enable recipients to make use of the higher allowance, while investors should seek help from their advisors with regards to rebalancing income streams.

Non-UK Domiciled People

Non-domiciled individuals become UK domiciled if they have been resident in the UK for 15 out of 20 tax years. Those becoming UK domiciled on 6 April 2018 should seek advice from their tax accountant with regards to settling worldwide assets into protected trusts in order to avoid paying UK tax on them.

Any non-UK domiciled people who have claimed the remittance basis on offshore accounts up to 5 April 2017 have an opportunity to separate their offshore mixed accounts into their varying components until 5 April 2019. This enables them to set aside clean capital funds that can then be used in the UK without UK tax implications. Again, employing a specialist tax accountant to help with this is strongly recommended.

Mortgage interest relief reduced

The government is further restricting the income tax relief available on mortgage interest payments for rental businesses. From 6 April 2018, only 50% of qualifying interest payments can be taken as a deduction from rental profits. The remainder can be used as a 20% tax reducer as long as the business is making sufficient rental profits. As a result, some taxpayers will face higher tax rates on their income.

Inheritance tax RNRB increase

An additional inheritance tax benefit, introduced to help homeowners and former homeowners, sees an increase on 6 April 2018. The Residential Nil Rate Band increases to £125,000 per person, giving married couples a maximum of £900,000 of nil rate band to use against their estates.

Onward gifts for offshore trusts

It’s previously been the case that those with overseas trusts with UK beneficiaries could make so-called ‘indirect distributions’ to avoid tax consequences. From 6 April 2018, this will no longer be possible.

Despite much debate around the subject, the ruling is set to go ahead, meaning anybody with an offshore trust should seek professional advice before making distributions and subsequent onward gifts.

Planning for 2018/19

Those affected by any of the above changes should seek to settle their affairs by 6 April 2018 to make best use of the current legislation. Speak to your tax advisor today to find out more.

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