Make the most of the new tax year with these key changes to tax, pensions and finance
The new tax year began on 6 April and brief details of the changes for 2019/20 are listed below:
Income Tax Allowance
The amount everyone can earn before paying income tax has increased from £11,850 to £12,500, which means that all taxpayers will receive a small boost. This month also sees the higher-rate tax band increase from £46,350 to £50,000.
t is estimated that these changes will help more than 32 million people to reduce their tax bill.
Unfortunately, those on the higher-rate band will also see an increase in their National Insurance contributions. As the upper earnings limit is linked to the higher-rate tax band, employees will now pay the existing 12 per cent rate on their earnings between £46,350 to £50,000 rather than the two per cent previously charged.
There are several tax-free allowances that have increased from 6 April. One of the most significant for those looking to dispose of assets is the increase in the amount of capital gains you can make in a year before paying tax, which has risen from £11,700 to £12,000.
The lifetime tax-free allowance for pension contributions has also gone up from £1,030,000 to £1,055,000, while smaller incentives, such as an increase in the Junior ISA allowance to £4,368 per annum offers taxpayers more ways of distributing their wealth in a tax efficient manner in order to reduce the amount they pay on their income.
Passing on wealth
Those nearing the end of their careers may also be concerned about the prospect of inheritance tax on their beneficiaries.
Whilst the standard tax-free nil-rate band remains £325,000 for individuals and £650,000 for married or civil partnered couples, the new residence nil-rate band allows property to be passed on in a more tax efficient manner.
This new rate increased from to £125,000 last year and has risen again to £150,000 this year.
However, in order to benefit from this rate, the property must be passed to a direct descendant and those with an estate worth more than £2 million will see the allowance taper away by £1 for every £2 over the threshold.
State pension rises to £168.60 a week
The state pension continues to benefit from the triple-lock, which means that many pensioners are now enjoying a 2.6 per cent increase in their state pension.
For those on the basic-state pension, they will now receive up to £129.20 per week, while the flat-rate state pension for those retiring from April 2016 onwards has risen to £168.60.
If you are in receipt of the state pension but are still working as a freelancer or contractor, it is important that you take into consideration this additional income when reporting your affairs.
Mortgage interest relief cut for landlords
Following the whittling away of mortgage interest over the last few years buy-to-let investors now only enjoy 25 per cent relief on their mortgage interest. For some, this could push them into the higher-rate tax bracket. From next year, all property investors will only enjoy a basic rate tax relief reduction, at 20 per cent.
Student loan threshold increases
If you started university in 2012 or after, the earnings threshold at which you start paying back the loan has increased from £25,000 to £25,725.
Those who studied before 2012 will also see their threshold rise from £18,330 to £18,935, when they repay the nine per cent of their earnings required, which could help them to save up to £54.
It is important that if you report your own earnings under self-assessment that you consider the repayment of your student loan, where one exists, and factor this into your tax return.