Understanding your energy usage
We look at nine ways the 2020/2021 tax year could affect you and your finances.
The new tax year has seen no change to the tax-free personal allowance which has remained at £12,500. This means you can earn £12,500 before you start paying tax on your income.
The amount you can earn before starting to pay higher rate tax has also remained at £50,000.
In Scotland, the tax-free personal allowance is still £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.
The threshold at which you start to pay National Insurance Contributions has increased this year from £8,632 to £9,500. The government says the move will save a typical employee around £104 in 2020/21, while those who are self-employed will save £78.
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 jumped significantly, rising from £4,368 to £9,000.
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.
There’s good news if you earn the minimum wage. Although it’s not strictly a tax year change, as of 1 April, 2020, the hourly rate for those aged 25 or over has gone up by 51p to £8.72 per hour.
The minimum wage has increased from £7.70 to £8.20 if you’re aged between 21-24.
And if you’re aged between 18-20, your hourly rate has risen from £6.15 to £6.45.
The income threshold that lowers the amount high earners can pay into a pension has increased to £200,000 from £110,000. This means anyone earning less than £200,000 a year will not have to worry that the annual pension allowance of £40,000 will be reduced or ‘tapered’.
The lifetime allowance (the maximum total amount you can put in your pension, tax-free) has also risen from £1,055,000 to £1,073,100.
Meanwhile, the state pension is increasing by 3.9%. Those who receive the full single-tier state pension will get an additional £6.60 a week, which will boost their weekly payments to £175.20.
Pensioners who reached state pension age before April 2016 receive the basic state pension and an additional state pension. For this group of people, the basic state pension will increase £5.05 a week to £134.25, while the additional state pension will go up by 1.7%.
Unfortunately, from this month council taxes are set to rise by 4% in many areas. Last year, the government gave permission for councils to increase rates by up to 2% from April 2020, while local authorities with social care responsibilities have been able to increase rates by up to 4%.
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.
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 £26,575 a year – it was previously £25,725.
You’ll need to repay 9% of everything you earn above this threshold each year, and if you never earn more than £26,575, you won’t have to pay anything back.
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 2020/21 tax year, you’ll get an additional £175,000 allowance on top (meaning a total allowance of £500,000).
This is up from £150,000 last year, and this is the last year it will rise.
For couples, this year’s total allowance is £1 million, as when one partner passes away, their allowance can be transferred across.
The Capital Gains Tax annual exempt amount for individuals has increased to £12,300 from £12,000.
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