Autumn Budget 2018 Income Taxes

Autumn Budget 2018 Income Taxes

The Autumn Budget in 2018 confirmed the following changes to personal income taxes:

Personal Allowance

In April 2019 the personal allowance will increase to £12,500. Currently the personal allowance is £11,850.

The personal allowance is how much a UK taxpayer can earn before they pay tax. Increasing the rate by £650 means that a typically basic rate taxpayer will pay £130 less in income tax next year.

Individuals earning over £100,000 suffer a reduction in their personal allowance. The reduction is £1 for every £2 of income which exceeds £100,000. Therefore from April 2019 individuals with income exceeding £125,000 will receive no personal allowance.

Higher Rate Threshold

In April 2019 the higher rate threshold will increase to £50,000. Currently the higher rate threshold is £46,350.

Income up to the higher rate threshold is taxed at basic rate tax.

Additional Rate Threshold

The additional rate threshold remains at £150,000 in April 2019. All income over £150,000 is taxed at the additional rate of tax.

Rates of tax

The rates of income tax remain the same from April 2019. They are 20% for basic rate taxpayers, 40% for higher rate taxpayers and 45% for additional rate taxpayers.

Tax on Dividends

The first £2,000 of dividends received remain tax free from April 2019. This is known as the dividend allowance. Dividends which are received above this allowance are taxed at the following rates:

  • 7.5% for basic rate taxpayers
  • 32.5% for higher rate taxpayers
  • 38.1% for additional rate taxpayers

To calculate what rate of tax to pay on dividends the individual must account for all other income first, this includes the dividend allowance.

For example an individual with a £45,000 gross salary and dividends of £10,000 would pay the following taxes on the dividends from April 2019 – first £2,000 would qualify for the dividend allowance and be taxed at 0%, the next £3,000 would take the individual up to the higher rate threshold of £50,000 and be taxed at 7.5% and the remaining £5,000 would be taxed at 32.5%.

Return to the Autumn Budget 2018 Overview

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