We’re now a couple of months into the new tax year and there have been quite a few changes to allowances and reliefs. It’s vital that you know what these changes are, how you can take advantage of them and how you can avoid getting caught out!
Our guide gives you seven key things you should be aware of in tax year 2019/20.
1. Your Personal Allowance has risen
The Personal Allowance typically increases every year and this year there has been an unexpected jump in the amount of income you can earn before you pay Income Tax.
The allowance rose from £11,850 to £12,500 – an increase of more than 5%. Additionally, the threshold at which you pay Higher Rate Income Tax has been raised to £37,500. This means that you’ll start paying higher rate tax on earnings over £50,000 (rather than £46,350 in the previous tax year). The government has estimated that this change will take a million taxpayers out of the higher rate bracket.
Remember that if you earn over £100,000, your Personal Allowance will likely be reduced. For every £2 that you earn over £100,000 you lose £1 of your Personal Allowance. So, if you earn over £125,000, you’ll get no Personal Allowance and you’ll be taxed on all your income.
2. Some pension allowances, payments and contributions have changed
The annual amount that you can pay into your pension while still receiving tax relief hasn’t changed this tax year and remains at a maximum of £40,000.
However, the lifetime pension contribution allowance has increased from £1.03 million to £1.055 million. This is the limit on the amount that you can accumulate in a pension without paying any additional tax, and it rises annually in line with inflation.
If you’re paying into a workplace pension, then the auto-enrolment minimum contributions increased on 6 April. The employer minimum contribution has increased to 3% and your employee contribution has risen to 5%. The total minimum contribution is now 8%.
If you receive the State Pension, then this has also increased in the 2019/20 tax year. Rising by 2.6%, the old basic State Pension has increased by £3.25 to £129.20 per week, while the new State Pension has risen by £4.25 to £168.60 per week.
3. Your annual Capital Gains Tax exemption has gone up
Your annual Capital Gains Tax exemption has increased this year, meaning that you can now make a gain of up to £12,000 before you’re taxed.
Above this amount, you’ll pay 10% on the gain if you’re a lower-rate taxpayer, or 20% if you are a higher or additional-rate taxpayer.
If you’re selling a second property – for example, if you’re a Buy to Let landlord, you’ll pay rates of 18% and 28%.
One further change this year is that the scope of Capital Gains Tax for non-UK residents has been extended to include all disposals of UK property.
4. You get a higher Residence Nil Rate Band for Inheritance Tax
The basic Inheritance Tax threshold has remained at £325,000 this year. However, if you’re thinking of passing on your home to your children or grandchildren, there has been a useful increase in the ‘Residence Nil Rate Band’ this tax year.
This allowance has increased to £150,000, which has the effect of increasing your tax-free allowance to £475,000. Considering that you can also pass assets to your spouse tax-free, it means the surviving spouse could have a tax-free allowance of up to £950,000. This allowance will rise again in tax year 2020/21.
5. If you’re a landlord, the amount of mortgage interest you can claim has fallen
Buy to Let investors have been hit by various tax changes in the latest couple of years and this continues into 2019/20.
In the past, landlords have been able to claim mortgage interest as a business expense when working out the profit they generate on rental properties. Since 6 April 2019, you can now only claim 25% of the interest as tax-deductible. This will reduce to zero in the 2020/21 tax year.
6. The Junior ISA limit has gone up
The amount that you can save tax-free in an Individual Savings Account (ISA) has not changed this tax year. You can save up to £20,000 in cash and stocks and shares ISAs.
You can put up to £4,000 into a Lifetime ISA designed to help you to save for your first home or for your retirement. Remember that this amount counts towards your £20,000 overall limit.
One ISA allowance that increased on 6 April was the Junior ISA. You can now pay up to £4,368 into your Junior ISA (up from £4,260).
7. The Student Loan repayment threshold has gone up
If you have a Student Loan, from April 6 this year the earnings threshold before you start to repay your loan has risen:
- Plan 1 loans have risen to £18,935 (from £18,330)
- Plan 2 loans have risen to £25,725 (from £25,000)
Repayments on earnings above these thresholds will be calculated at 9%.
Need any advice on your pension, investment or tax planning? If so, please get in touch by email at firstname.lastname@example.org or call 0800 0787 182.
Tax reliefs referred to are those currently applying and are liable to change. This newsletter does not represent a personal recommendation and you should seek independent financial advice.