taxes

Changes for the new tax year: key things to look out for

As of April 6th, a new tax year came into play.

With that came a number of changes across personal taxes, business allowances, student loans and corporation tax.

Some of the most significant changes have taken place in the world of personal finance, surrounding pension and personal allowances.

With that in mind, and from a personal finance perspective, here’s what you should be looking out for to make it a happy new tax year.

Personal allowance and income tax bands

The first bit of good news is that the personal allowance threshold, as in the amount you can earn before paying tax, has risen from £11,850 to £12,500.

This has had a knock-on effect to income tax rates, with taxable income figures having risen within each bracket.

For the UK, excluding Scotland, this covers four tax bandings: personal allowance, basic rate, higher rate and additional rate, with the higher rate threshold increasing most notably to £50,000. In Scotland, there are six bandings, with threshold changes focusing on lower income earners.

You can find the full tables and information here.

This increase should equate to an additional £650 of tax-free earnings on the year, although National Insurance rates (outside of Scotland) will cancel out around £340 of this.

The personal allowance increase is also good news for those with savings sat outside of a protected ISA or pension.

Auto-enrolment and pension contributions

While auto-enrolment has been in place for seven years now, minimum contributions continue to rise.

This year, contribution levels will rise from 5% to 8%, consisting of 4% from employees, 3% from employers and an extra 1% via tax relief.

This change covers the majority of the population, affecting those earning between £6,136 and £50,000.

Although this is a positive stride in continuing to help people prepare for the future, it’s important to note these contribution increases are still unlikely to be enough to provide a comfortable level of retirement income.

With that in mind, earners should be looking to come up with a sensible financial strategy to further augment their funds.

State pension and pension lifetime allowance

Further positive news for pensioners is an increase in the state pension, which will see a £4.25 increase per week to £168.60 on the new full-rate scheme. This works out as an extra £221 on the year.

It should be noted that, from October 2020, the state pension age will rise from 65 to 66, and again to 67 between 2026 and 2028.

As for the Lifetime Allowance (LTA), which is the limit a pension fund can be built up to without further taxation, the current figure of £1.03m has risen to £1.06m, meaning a potential extra £30,000 will avoid the extra tax.

So, on the face of things, a number of small but positive changes to take note of. With potential increase of tax-free earnings over the year, alongside better saving conditions, Brits will hope to see further encouraging news come the next tax year.