The 2019/20 tax year started on 6 April and in general taxpayers will have more money in their pocket after increases to allowances came into force, but there are a few losers, in particular, those selling shares and buy-to-let landlords.
INCOME TAX - The tax-free personal allowance increased from £11,850 to £12,500, after Chancellor Philip Hammond announced in the 2018 Budget that he was bringing the rise forward by a year. The higher-rate tax band increased from £46,350 to £50,000 in England, Wales and Northern Ireland.
The National Insurance upper earnings limit has increased from £46,350 to £50,000, and all of the UK is now on the same level of 12% between the threshold of £8,632 and the upper earnings limit of £50,000 before this reduces to 2% on earnings above this level.
INHERITANCE TAX - The threshold at which the 40% Inheritance Tax rate applies on an estate remains at £325,000. However, the Residence Nil-Rate Band increased to £150,000. This is an allowance that can be added to the basic tax-free £325,000 to allow people to leave property to direct descendants such as children and grandchildren, taking the combined tax-free allowance to £475,000 in the current tax year. However, the allowance is reduced by £1 for every £2 that the value of the estate exceeds £2 million. When you pass on assets to your spouse, they are Inheritance Tax-free, and your spouse can then make use of both allowances. This means the amount which can be passed on by a married couple is currently £950,000.
PENSIONS - The State Pension increased by 2.6%, with the old basic State Pension rising to £129.20 a week, and the new State Pension rising to £168.60 a week. The minimum contributions under the Government’s auto-enrolment scheme have also increased to 8%. The increase means that employers must now pay in at least 3% of an employee’s salary, and the employee pays the balance.
The level of the State Pension rises every year by the highest of 2.5%, growth in earnings or Consumer Price Index (CPI) inflation. This is due to the ‘triple lock’ guarantee, which was first introduced in 2010.
The pension lifetime allowance increased to £1,055,000 on pension contributions, in line with CPI inflation. This is the limit on the amount retirees can amass in a pension without incurring additional taxes. Anything above this level can be taxed at a rate of 55% upon withdrawal. The overall annual allowance has remained the same at £40,000, along with the annual allowance taper which reduces pension relief for those with a yearly income above £150,000.
INVESTORS - The Junior Individual Savings Account (JISA) limit increased to £4,368. All other JISA limits remain the same. The annual amount that can be sheltered across adult ISAs stays at £20,000 for the 2019/20 tax year.
The Capital Gains Tax annual exemption, which everyone has, increased to £12,000. Above this amount, lower rate taxpayers pay 10% on capital gains, while higher and additional rate taxpayers pay 20%. However, people selling second properties, including buy-to-let landlords, pay Capital Gains Tax at 18% if they are a basic rate taxpayer, or 28% if a higher or additional rate taxpayer.
BUY-TO-LET LANDLORDS - On 6 April, the next stage of the phased removal of mortgage interest relief came into effect. Buy-to-let landlords used to be able to claim the interest paid on their mortgages as a business expense to reduce their tax bill. Now, they will only be able to claim a quarter of this amount as tax-deductible ahead of the complete removal of the relief in the 2020/21 tax year.
INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS, BASES, RELIEFS ARE SUBJECT TO CHANGE.
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