With the 2019/20 tax year well underway, most taxpayers should generally be better off. But in case you missed the key changes, George Square Financial Management revisits some of the main points you should be aware of.
The 2019/20 tax year has introduced a number of increases to tax allowances which came into effect on 6 April. These increases mean that a lot of us should be experiencing a little more money in our pocket. However, there are inevitably some who will have lost out, particularly those selling shares and buy-to-let landlords.
Here are some of the key changes to note:
The tax-free personal allowance has risen from £11,850 to £12,500. There has also been a rise in the higher-rate tax band across England, Wales and Northern Ireland, from £46,350 to £50,000. In Scotland however, where income tax rates are devolved, the higher-rate tax band remains at £43,430 (£6,570 lower than the rest of the UK). Additionally, the National Insurance upper earnings limit has also increased from £46,350 to £50,000. 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, which then reduces to 2% on earnings above this level.
In the 2019/20 tax year, the threshold at which the 40% inheritance tax rate applies on an estate remains at £325,000, but the new residence nil-rate band has increased to £150,000. This can be added to the basic tax-free £325,000, taking the combined tax-free allowance to £475,000 per person (or £950,000 for a married couple). However, the allowance is reduced by £1 for every £2 that the value of the estate exceeds £2 million.
The 2019/20 tax year has seen the state pension increase by 2.6%. This means the old, basic state pension has risen to £129.20 a week, and the new state pension to £168.60 a week.
Minimum contributions under the Government’s auto-enrolment scheme have also increased to 8%, with employers now required to pay in at least 3% of an employee’s salary.
Additionally, the pension lifetime allowance has risen to £1,055,000 for pension contributions. 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, however, still stands at £40,000.
The Junior Individual Savings Account (JISA) limit is now £4,368, but all other JISA limits have remained the same. The annual amount that can be sheltered across adult ISAs also stays the same at £20,000 for the 2019/20 tax year.
Capital gains tax annual exemption continues to rise, reaching £12,000 this tax year. 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 they are a higher or additional rate taxpayer. Capital gains tax for non-UK residents has been extended to include all disposals of UK property.
Entrepreneurs’ Relief gives a capital gains tax break to those who sell shares in an unlisted company. This is providing they own at least 5% of the shares and up to a lifetime value of £10 million. The holding period to qualify for the relief is 24 months.
Significantly, this is also the first tax year where claims can be made for Investors’ Relief. In a similar way, this gives capital gains tax breaks to those who sell shares in unlisted firms. But, while Entrepreneurs’ Relief is aimed at company directors, Investors’ Relief is geared to encourage outside investment in firms. There is no minimum shareholding to be eligible, but investors must have held the shares for at least three years. As the relief was introduced in 2016, this is the first tax year when it can be used.
On 6 April this year, 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. For the 2019/20 tax year, 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.
If you’re unsure how these changes from the 2019/20 tax year affect you and your financial plans, contact one of the friendly advisers at George Square Financial Management. We can provide clarity and support to help you understand your position now and in the future.
Please call us on 0115 947 5545, or send us an enquiry here.