Spring has arrived and brings with it a new tax year.
The 2019/2020 new tax year heralds quite a few changes – read on to see which ones will make a difference to you.
Personal tax allowance
The personal tax thresholds for UK taxpayers are increasing, meaning we will all pay a little less tax from 6th April. The tax free personal allowance will increase from £11,850 to £12,500 and the higher-rate allowance will increase from £46,350 to £50,000.
Scotland and Wales will also see similar changes to income tax thresholds.
Tax for residents of Wales
If you live in Wales your income tax will go towards funding Welsh public services for the first time from 6th April 2019. As The Welsh Government proposes to set the first rates at 10p, Welsh taxpayers will continue to pay the same income tax rates as those paid by English and Northern Irish taxpayers.
There will be no changes to the way tax is collected by HMRC but the rates of income tax paid will be set by the Welsh Government for the first time from 6th April 2019. The Welsh Government will be able to vary the rate which is to be paid by tax payers living in Wales. This means that people living in Wales could end up paying a different rate compared to others in the UK in future years.
National Living Wage and National Minimum Wage
Increases to National Living Wage and National Minimum Wage come into effect in April for UK employees. Announced by Philip Hammond back in the October 2018 Budget, the increases mean employers will be required by law to pay these new rates as of 1st April 2019.
Recommended by the Low Pay Commission (LPC), the increase in the National Living Wage (NLW) ensures a pay rise for the lowest-paid workers, that exceeds both inflation and average earnings.
Inheritance Tax (IHT)
Due to ever increasing property prices more estates than ever are being drawn into the IHT net.
IHT is currently charged at 40% on the proportion of an individual’s estate exceeding the ‘nil-rate band’ of £325,000. The additional rate applying to property passed to a direct descendant will increase from £125,000 to £150,000, which takes the tax free allowance up to £475,000.
Married couples and registered civil partners can now pass on assets to a spouse tax free and that spouse can then use both allowances. This means couples can now pass on an allowance of £950,000.
Lifetime allowance on pensions
The lifetime allowance on pension contributions will increase to £1.05m in April 2019. You usually pay tax if your pension pots are worth more than the lifetime allowance which is set currently at £1.03 million.
Therefore, anything above this new level of ££1.05m can be taxed. The rate of tax you pay on pension savings above your lifetime allowance depends on how the money is paid to you – the rate is:
- 55% if you get it as a lump sum
- 25% if you get it any other way, for example pension payments or cash withdrawals
Auto enrolment minimum contributions
The minimum contributions employers and employees pay into their automatic enrolment workplace pension scheme will increase as of 6th April 2019, due to phased scheme changes.
A total minimum amount of contributions must be paid into the scheme, which will be 8% from 6th April 2019. This 8% will be made up from the employer contribution of 3% and the staff contribution of 5% for those who have chosen to remain opted in to the scheme.
If you decide to cover the total minimum 8% required, your staff won’t need to pay anything.
Mortgage interest tax relief for landlords
Landlords will continue to feel the effect of cuts to mortgage interest tax relief. Landlords used to be able to claim the interest paid on their mortgages as a business expense to reduce their tax bill. On April 6 2019 the next stage of the phased removal of mortgage interest relief will come into effect, meaning landlords will only be able to claim 25% of their mortgage tax relief. Previously, this was 50% for the 2018-19 tax year and it will be completely removed in 2020.
Fuel duty will be frozen for the 2019/20 tax year.
The Junior Isa limit will increase from £4,260 to £4,368. All other Isa limits stay the same.