New tax year 2019: The changes coming into effect

As the new tax year starts, the overall feeling is that taxpayers will have more money in their pocket from the changes now in force. As always, it’s not all good news – for people who like to dabble in buy-to-let properties, they will be hit harder by the changes.

Here are the main headlines:

Personal Allowance

The Personal Allowance has risen from £11,850 to £12,500 and the higher-rate allowance will increase from £46,350 to £50,000. This means that basic-rate taxpayers will save £130 a year, while higher-rate taxpayers will save up to £860.

National Insurance Threshold

The threshold for paying National Insurance contributions also increased on 6 April.  If you earn less than £8,632 (up from £8,424 in 2018/19) you’ll pay no National Insurance contributions. If you earn more you’ll now pay 12 percent of your earnings between £8,632 and £50,000 and 2 percent on any earnings above £50,000 – up from £46,350 in 2018/19.

State Pension

The new single-tier State Pension is also rising in the new tax year by £4.25 a week, or £3.25 a week for the basic State Pension. The new State Pension is now worth £168.60 per week – or £8,767.20 per year – while the basic State Pension is £129.20 a week, or £6,718.40 a year.

State Pension Credit

Pension Credit is made up of two parts (guarantee credit and savings credit) and the new tax year has increased this by 2.4%. The income thresholds have also risen from £163 to £167.25 per week for a single person and from £248.80 to £255.25 for a couple.

Personal Pension Contributions

Auto-enrolment contributions will increase to 8%, with employee payments increased from 3 percent to 5 percent on 6 April.

Personal Pensions Lifetime Allowance

The Pensions Lifetime Allowance, which is the amount of pension you are allowed to amass over a lifetime, has risen from £1.03m to £1.055m.

Junior ISA Allowance

If you’re saving for children – a Junior ISA has increased slightly, from £4,260 to £4,368.

National Living Wage

The National Living Wage has risen to £8.21 for those 25 and over – up from £7.83 before April. Together, with increases in the National Minimum Wage for those under 25, it’s estimated 2.4 million workers will benefit in total.

Capital Gains Tax

The capital gains tax allowance is increasing to £12,000 in 2019-20, (rising from £11,700). Any amounts above this will be taxed at 18% for a basic-rate payer, and 28% for a higher-rate payer.

Inheritance Tax

There is a boost to inheritance tax (IHT). The basic Nil Rate Band will remain at £325,000, but the additional rate, applying to property passed to a direct descendant, will increase from £125,000 to £150,000, taking the tax-free allowance to £475,000 per person.

Buy to Let Property

Interest paid on mortgages as a deductible business expense is being slowly phased out, from April 6 only 25% can be deducted. This is being replaced by a 20% tax credit. For a basic-rate taxpayer, this will not be much different, but a higher – or additional-rate payer, will be paying significantly more tax on their mortgage interest.

The closure of a loophole in rent-a-room relief which previously allowed them to claim £7,000 a year of rental income tax free. This will now only apply if the owner lives in the property while renting it out.

Not everything has changed and just to clarify, here are the non-movers:

  • The annual ISA allowance remains at £20,000 a year. The amount you can put into your Lifetime ISA also remains at £4,000 a year.
  • Personal Savings Allowance introduced in 2016, will remain at £1,000 of interest on savings without paying tax on it. For those on higher rate the allowance is set at £500.
  • Dividend threshold allowance remains at £2,000 – basic rate taxpayers will continue to pay 7.5 percent tax on their dividends, while higher rate taxpayers will continue to pay 32.5 percent and additional rate taxpayers, 38.1 percent.
  • The rules on pension tax relief will also remain at £40,000 a year.

As usual, if you have any questions on any of the above, just give us a call!