The new tax year is here —it’s not quite the same as the calendar new year (there are no fireworks to mark a new financial year) — but it shouldn’t pass you by, because there are some important changes that will put more money in your pocket. Here are some of the most important changes the 2019/20 tax year will bring…
A pay rise for all – thanks to higher tax thresholds
The personal allowance — the amount you can earn before paying tax — has increased from £11,850 to £12,500. The amount you can earn before paying 40% tax is also increasing — from £46,350 to £50,000. In the October Budget, Philip Hammond said the changes would give basic rate taxpayers an extra £130 a year and boost higher-rate taxpayer earnings by £860.
More money in your pension — auto-enrolment levels increase
Not only will you be paying less income tax, you can also expect more free cash going into your pension from your employer, although you will also need to pay more in too. For all workers (aged over 22 and earning more than £10,000), the minimum contribution rises to 5%, and to 3% for employers. It means those on a salary of £27,000 who would have been paying around £500 in the previous tax year (if they made minimum contributions), will rise to more than £850 in 2019-20.
A rise to the pensions lifetime allowance
The amount you can save in a pension has increased in line with inflation, rising to £1.55 million for 2019-20, from £1.03 million previously. Anything above this ‘lifetime allowance’ is taxed at 55% when you start withdrawing it. The maximum amount you can put into your pension each year remains unchanged at £40,000.
A capital gains tax allowance increase
The capital gains tax annual exempt amount for individuals will increase by £300 to £12,000 from £11,700.
Homeowners can pass on the family home tax-free
Everyone can pass on up to £325,000 to loved ones, tax-free, when they die. There is also a main residence allowance, which has increased from £125,000 per person, to £150,000. This means that anyone who owns a home can pass on up to £475,000 of wealth without inheritance tax being due — £950,000 for married couples and civil partners. The extra allowance is only given to a person who previously lived in the property and has left it to a direct descendant, which means children, grandchildren, step, adopted or foster children.
The residence allowance is set to rise to £175,000 in the following tax year 2020/2021.
Parents – more tax-free savings for kids
The Junior ISA limit has risen to £4,368, up from £4,260. Those aged 16 or 17 are especially lucky as they can have a Junior ISA allowance plus an adult ISA allowance which has remained at £20,000.
Changes for this tax year don’t bring good news for everyone, of course…
BTL landlords — pay more tax on rental income
The second stage of cutting tax relief comes in for landlords who pay a higher rate of tax. In the new tax year 2019-20 only 25% of mortgage interest payments will be deductible as a business expense. In April 2020 the option will be removed entirely and replaced with a 20% tax credit.
Last chance for Help to Buy ISA
During this tax year, the Help to Buy ISA will close to new applicants. This Government savings scheme — which pays a 25% bonus on savings earmarked for a first property — is to close on 30 November. The account offers a 25% bonus on savings earmarked for a first property. Savers can put away £1,200 in the first month and £200 a month thereafter. For every £200 you save, you get a £50 boost from the Government, up to £3,000. If you already have a Help to Buy ISA, or open one before the end of November, you can keep paying into your account and claim the bonus until 1 December 2030.