Here we are in April, on the cusp of a new tax year. As ever, this is the annual opportunity to consider any changes, evaluate how they impact on clients, and act where needed – if you haven’t already. This year, there are a raft of tax tweaks to get up to speed with, although thankfully no massive shifts in legislation. The 2019-2020 tax year brings with it some adjustments, including to personal allowances, benefits in kind and CGT, amongst others.
Here, the Keytime team has rounded up the key elements to be aware of from this week onwards:
Happy birthday to the ISA
Many happy returns to the ISA! On 6th April this tax-efficient way to save turned 20 years old. The flexibility and security of ISAs has made them hugely popular and around four out of 10 adults have money in them, worth around £608 billion. This year, the limit is £20,000 in a cash ISA, a stocks & shares ISA, a Help-to-Buy ISA, an innovative finance ISA, a Lifetime ISA or a mix of all of those. And Junior ISA limits rise from £4,260 to £4,368.
Personal allowance increase
The rate of Personal Allowance rose on 6th April to £12,500 from £11,850 – the Chancellor brought the increase in a year ahead of schedule. It prompts a minor reduction in tax of £130 a year for most. The threshold for paying the Higher Rate of income tax will go up to £50,000 from £46,350.
Changes in Scotland
The personal allowance threshold of £12,500 remains the same in Scotland, but after that the first £2,049 of earnings are taxed at 19%. Then it moves to 20% tax until earnings hit £24,944, where it rises to 21%. The higher-rate tax band will remain at £43,430, which is £6,570 lower than the rest of the UK. After £43,431 the rate is 41%.
From this week, the Class 1 National Insurance threshold will be £8,632 a year. Those earning less will not need to make contributions. Those earning more will pay 12% of earnings between £8,632 and £50,000 and 2% is payable on any earnings above £50,000.
The 40% threshold will stay put at £325,000, but the nil-rate band will rise from £125,000 to £150,000. This can be added to the tax-free £325,000 to enable assets like property to go to direct descendants. For those with bigger estates, the allowance goes down by £1 for every £2 that the value of the estate exceeds £2 million.
Firstly, to note that the state pension is rising slightly. Also, the increase in auto-enrolment pension contributions rises again, with the total amount of employer and employee contributions set at a minimum of 8% of the eligible employee’s earnings. For private pensions, the lifetime allowance for pension savings increases from to £1,055,000 (from £1,030,000). However, there is no movement on the tax-free amount you can pay into a personal pension, which stays put at £40,000.
Minimum wage and Living Wage
Slight pay rises incoming for those on minimum wage. The amounts increased from 1st April 2019. The minimum hourly rate that staff are entitled to depends on age and if they are an apprentice. Those 25yrs and older will now receive £8.21 per hour.
Student loan threshold increase
It has been confirmed that the earnings threshold will rise, to qualify for making student loan repayments. Plan 1 loan will rise to £18,935 from £18,330 and Plan 2 loans will rise to £25,725 from £25,000. Those who don’t know which category they fall into, can use the Student Loan tool here.
The dividend tax remains at £2,000 and no tax is payable on any unused personal allowance that covers an additional dividend amount. Basic-rate taxpayers pay 7.5% on dividends up to £50,000.
Higher-rate taxpayers pay 32.5% on dividends and additional-rate taxpayers pay 38.1% on dividends.
Capital gains tax
The Capital Gains Tax annual exemption level for individuals increases to £12,000 from £11,700.
Lower-rate taxpayers pay 10% on capital gains, while higher and additional rate taxpayers pay 20%. Added to which, Entrepreneurs’ Relief qualifying conditions period will be extended from 12 months to 24 months.
Company cars, vehicles and fuel
Benefit in kind (BiK) tax rates are increasing for company cars, applied to the list price of the car and based on CO2 emissions published by the Vehicle Certification Agency. Fuel benefit charges apply to if the petrol or diesel is provided for personal uses, which counts as BiK. The tax on these benefits is rising on company vans to £3,430 and the BiK on fuel for a van provided for personal use going up to £655. Those supplied with both a company car and fuel from the employer is taxed on the cash equivalent value of the benefit. The cash equivalent amount rises this year to £24,100 from £23,400.
Business rates for companies with a rateable value of £51,000 or less have been reduced. The Government announced that it is providing a business rates Retail Discount scheme, under which small firms receive a one-third discount on their rates bills from this month, for the next two years.