Taxes, personal allowances and limits - what you'll pay in 2018/19

Moneywise has rounded-up what you’ll pay in 2018/19. This guide applies UK-wide unless stated in the piece. 

Income taxes

The personal allowance, or the amount you can earn tax-free before you start paying income tax, has risen by £350 to £11,850. Pensioners won’t receive a higher personal allowance than other age groups.

In England, Northern Ireland and Wales, you will pay basic rate tax (20%) on your taxable income between £11,850 to £46,350. This means you can earn up to £46,350 before you start paying higher rate tax (40%).

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If you earn £100,000 or more, your tax-free personal allowance falls by £1 for every £2 you earn over £100,000. So, if you earn £123,700 or more, you won’t receive a tax-free personal allowance at all.

The additional rate income tax (45%) is charged on earnings over £150,000.

Income tax rates in Scotland differ. The personal allowance is the same, with no tax paid up to £11,850.

On earnings between £11,850 and £13,850, workers pay a starter rate of 19%. The basic rate kicks in at £13,851, with 20% tax paid on earnings up to £24,000.

On earnings between £24,001 and £43,430, an intermediate rate of 21% is paid.

The higher rate band starts at £43,431 with 41% tax paid on earnings from this amount up to £150,000.

The top rate of tax is 46% and applies to earnings over £150,000. Workers in this band will receive no personal allowance.

Rent-a-room tax allowance

Homeowners can get £7,500 tax-free rental income from lodgers, or £3,750 each if they are letting their home with someone else.

You don’t need to own your own home to participate, tenants can rent out rooms too so long as it is permitted by their rental lease.

Property and trading income tax allowance

Once again this year, ‘micro-entrepreneurs’ can earn up to £1,000 of income tax free from both property and trading, (for example selling goods on eBay or Etsy). This first came into force for the 2017/18 tax year and applies again this tax year.

The personal savings allowance

You might be able to reduce your tax bill further if you receive income from savings.

Following the introduction of the new personal savings allowance in April 2016, basic rate taxpayers can now earn £1,000 from savings before they start paying income tax on savings income.

Higher rate taxpayers will only start paying tax on savings income over £500. These allowances remain unchanged for 2018/19. There is no savings allowance for additional rate taxpayers.

The Secure Trust Bank Five Year Fixed Rate Bond is the top paying account at 2.65%. This means basic rate taxpayers would need to have a balance of more than £39,000 to use up their full allowance, given interest is paid yearly.

Higher rate taxpayers would need around £19,500 before they start paying tax on savings income.

Looking for a new savings account? Check out our weekly roundup of the best deals. It’s worth checking current accounts too, as some, such as Nationwide, pay 5% interest on in-credit cash.

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Personal allowances can be stacked, so if you only receive an income from savings, you can earn £12,850 a year (that’s the £11,850 personal allowance, plus the £1,000 savings income) before you start paying tax.

National insurance – employees

While most people won’t pay income tax on the first £11,850 they earn, employees will need to pay national insurance once they are earning £162 a week.

This is payable at a rate of 12% for earnings between £162 and £892 a week (£8,424 to £46,350 a year). This falls to 2% for earnings above this threshold.

National insurance – self-employed workers

Self-employed workers who make more than £6,205 a year need to pay class 2 national insurance contributions (NICs). These are a flat rate of £2.95 per week (£153.40 a year), regardless of how much you earn. If you earn less than this you can make voluntary contributions.

This could be necessary if you have gaps in your national insurance record – currently you need 35 years of national insurance contributions to get the maximum state pension.

The government has delayed the abolition of class 2 NICs for a year, and its withdrawal will now not take place until 6 April 2019.

Additionally, self-employed workers who make more than £8,424 a year, will pay class 4 contributions of 9% of profits between £8,424 and £46,350 per year, plus 2% of any earnings above that.

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Dividend taxes

The dividend allowance has been cut this year, with everyone receiving a £2,000 allowance for the 2018/19 tax year, down from £5,000.

This can be stacked with your personal allowance, so if you don’t have other income you’ll be able to earn £12,850 tax-free in this way.

Once you have breached the allowance, basic rate taxpayers will pay 7.5% tax on dividends and higher rate taxpayers will pay 32.5%. Additional rate taxpayers will be charged 38.1% tax on dividend income.

These changes don’t affect any shares you hold in an Isa or a pension.

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Capital Gains Taxes

Lower rate taxpayers pay 10% tax on capital gains and higher and additional rate taxpayers pay 20%.

The only exception is people selling second properties, including buy-to-let investments. Capital gains on these investments will be charged at 18% for basic rate taxpayers, or 28% for higher and additional rate taxpayers.

However, every year you can take advantage of your capital gains tax allowance, so in 2018/19 you can make £11,700 before you start paying capital gains tax.

Pensions

There have been no major changes to pension allowances this tax year, so most people will be allowed to pay up to £40,000 into their pension this year.

Pensions contributions receive full income tax relief, this means it only costs basic rate taxpayers £80 to save £100 (20% tax relief) while higher rate taxpayers only need to pay £60 to save £100 (40% tax relief).

The lifetime pensions allowance has been increased for the 2018/19 tax year by £30,000 and now stands at £1,030,000.

Scottish workers may be entitled to claim additional tax relief on their pension contributions via a self-assessment tax return to bring them in line with the country’s new income tax rates (see above).  

This means, intermediate rate tax-payers will be entitled to 21% tax relief on contributions, while higher rate payers will be entitled to 41% relief, and top rate payers will get 46%.

Starter rate earners, who pay income tax at 19%, will still be able to get 20% tax relief on their pension contributions as will basic rate taxpayers.

Isas

You can once again save £20,000 in an Isa this tax year, where all your earnings will be completely free of tax. This applies to Cash Isas, Stocks and Shares Isas and Innovative Finance Isas and the allowance can be spread between the three types.

• Top Cash Isa rates this week

If you’re looking to buy a home there are more options. If you have a Help to Buy Isa you can save up to £3,400 in the first year and then £2,400 each year afterwards. For Lifetime Isas you can save £4,000 a year, and this can be used towards the cost of buying a first home or for retirement.

Read the Moneywise guide to Isas that help you buy your own home for more details.

Finally, the Junior Isa allowance is £4,260 for the 2018/19 tax year, up from £4,128.