The new 2019/20 Tax Year started last week and as usual there are a number of changes, which may well affect you. In most years these changes would be plastered all over the TV news or the newspapers, but unfortunately at the moment the press appears to be obsessed with just one topic, ‘Brexit’.
So today I will give you the highlights of what has changed and how these changes could potentially affect you.
Tax year 2019/2020: Your Personal Allowance
The one change that you’ll probably be aware of is that your personal allowance has yet again risen by a bigger percentage than annual inflation. In fact, it has gone up from £11,850 to £12,500 thus reducing your tax bill for the year by £130 or £260 if you’re a 40% taxpayer.
Additionally, for higher-rate taxpayers, the threshold beyond which you pay tax at 40% is going by a whopping £3,650 to £50,000. This will save you an additional £730 in the year.
But for any my readers living north of the border bear in mind that Scotland sets its own income tax bands and rates, which are slightly different than the rest of the UK.
Tax year 2019/2020: National Insurance
The basic rates of National Insurance are not in themselves changing, but the primary threshold above which you pay NIC’s has risen by a modest £208 giving you a saving of £25 for the year.
Also remember that before you dash out and spend any Income Tax savings, if you are a higher-rate taxpayer, the NIC rate of 12% will continue until you cross the £50k line, thus reducing the overall saving somewhat.
Tax year 2019/2020: Pensions
For those of you already retired, the Basic State Pension is rising by the higher of the two inflation rates –CPI and is going up by 2.6%.
If you are still working there are a number of changes, the main one being to workplace pensions, known as auto-enrolment pensions. If you’re in one of these schemes, the good news is that you employer will be contributing a minimum of an extra 1%, the bad news is that your level of contribution will going up by 2%.
On average as an employee you will be putting around £30 a month more into your pension pot, but together with the extra from your employer, in the long-term this will give you significant returns from the higher level of contributions.
Also don’t forget the Government tops up your contributions by an additional 20% to boost your pot further.
Finally, the amount that you can now invest into your pension pot annually tax-free (known as your Lifetime Allowance) has risen by £25,000.
Tax year 2019/2020: Additional changes
- ISA’s – The amount you can now put in for tax free growth is now £20,000 and it can all be in cash
- Inheritance Tax – If you leave your home to a direct descendant, such as your son or granddaughter, the additional tax-free allowance is rising from £125,000 to £150,000, reducing the potential tax bill by £10,000
- Capital Gains Tax – If you sell anything with a value exceeding £6,000 (excluding cars and houses) you could face a CGT bill, but from last week the first £12,000 of such sales is now tax-free.
- The Self-employed – There is a tiny increase in the annual NIC Class 2 charge of £2.60 for the year, however the big change is in relation to VAT, which any business with a turnover of £85,000 p.a. or over, must be registered for.
From this month not only will you have to complete the normal quarterly and annual returns as you do now, but also you’ll have to prepare an additional return every quarter under the new Making Tax Digital (MTI) regime that HMRC are introducing.