9 ways the new tax year affects you

The new tax year has seen the introduction of a number of measures. Find out what they mean for you.

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The start of a new tax year might not involve champagne and fireworks – but it can still be a time to celebrate. We take a look at nine ways the 2019/2020 tax year could affect you and your finances.

1. Higher personal allowance

The start of the new tax year has seen the tax-free personal allowance rise to £12,500 from £11,850 in 2018/19. This means you can now earn £12,500 before you have to start paying tax on your income.

The amount you can earn before starting to pay higher rate tax has also gone up. It’s now £50,000, up from £46,350 last year.

In Scotland, the tax-free personal allowance has also risen to £12,500. You’ll be taxed at the starter rate of 19% if you earn over £12,500 and up to £14,549.

Basic rate taxpayers in Scotland pay 20% on earnings over £14,549 and up to £24,944, while intermediate rate taxpayers pay 21% on earnings over £24,944 and up to £43,340.

Higher rate taxpayers pay 41% on earnings over £43,430 and up to £150,000. You’ll be taxed at 46% on anything over this.

2. Tax-efficient savings changes

The amount you can save into an ISA this tax year has remained at £20,000. You can invest into a cash ISA, stocks and shares or combination of both.

However, the Junior ISA allowance has increased slightly, rising from £4,260 to £4,368.

Meanwhile, if you are currently renting, you can still take out a Help to Buy ISA, with which the government boosts your savings towards a first home by 25%, but only until 30 November, 2019.

You won’t be able to open a new account after this date, but you will be able to keep an existing account and continue saving towards your new home.

Anyone under 40 can also still open a Lifetime ISA, into which the government will contribute towards a first home and/or retirement fund. You can find out more about Lifetime ISAs here.

Keep in mind too that thanks to the introduction of the Personal Savings Allowance in 2016, basic rate taxpayers can earn up to £1,000 in savings interest tax-free each year – in any savings account, including current accounts.

For higher rate taxpayers, the allowance is £500 a year.

3. Higher marriage allowance

If you’re married, or are soon to get married, the marriage tax allowance is a way for couples to transfer a proportion of their tax-free personal allowances between them.

It is aimed at couples in which one partner is the main breadwinner and the other earns less than the personal allowance (now £12,500).

And as the personal allowance has gone up this year, it now enables you to transfer up to £1,250 into the lower earner’s name, saving you up to £250 a year. You can apply for this tax break here.

4. Increase in minimum wage

There’s good news if you earn the minimum wage. Although it’s not strictly a tax year change, as of 1 April, 2019, the hourly rate for those aged 25 or over has gone up by 38p from £7.83 to £8.21 per hour.

The minimum wage has increased from £7.38 to £7.70 if you’re aged between 21-24.

And if you’re aged between 18-20, your hourly rate has risen from £5.90 to £6.16.

5. Pension changes

The amount you can save in to your pension tax-free has remained the same as last year at £40,000 per tax year.

However, the lifetime allowance (the maximum total amount you can put in your pension, tax-free) has risen from £1,030,000 to £1,055,000.

Meanwhile, if you have a workplace pension, your contributions will have increased as of 6 April, under auto-enrolment rules.

The minimum amount employees now have to pay into their workplace pension has increased to 5% from 3%.

Employers now have to contribute at least 3%, up from 2%.

Under auto-enrolment rules, all eligible employees are automatically signed up to a workplace pension – which is a pension arranged by your employer. If you don’t want to be signed up to it, you can opt out.

6. Council tax increases

Unfortunately, from this month council taxes are set to rise by at least 2.5% in some areas.

Many people will have received notice of an increase at the end of March, so you may already be aware of how much more you’ll have to pay.

If you think you’re in the wrong council tax band, you can appeal, especially if your neighbours are in a lower band.

You can check what council tax band your property is in, here.

7. Student loans threshold increase

If you’re heading to university this year, the threshold at which you need to start paying back your student loans has gone up. Now you will only start paying back what you owe once you are earning more than £25,725 a year – it was previously £25,000.

You’ll need to repay 9% of everything you earn above this threshold each year, and if you never earn more than £25,725, you won’t have to pay anything back. You can find out more about student loans in our article.

8. Inheritance tax changes

The tax-free inheritance tax allowance remains unchanged for the new tax year, at £325,000. Anything in your estate above this £325,000 threshold will be taxed at 40% when you pass away.

However, since 2017, if you are leaving a property to a direct descendant (a child or a grandchild), you can benefit from an additional tax-free allowance.

This is gradually being phased in and for the 2019/20 tax year, you’ll get an additional £150,000 allowance on top (meaning a total allowance of £475,000).

This is up from £125,000 last year, and it will rise by £25,000 again in April 2020 to a total of £175,000 (or a total allowance of £500,000).

For couples, this year’s total allowance is £950,000, as when one partner passes away, their allowance can be transferred across.

9. Higher Capital Gains Tax

The Capital Gains Tax annual exempt amount for individuals has increased to £12,000 from £11,700.

 

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