2020 tax year: changes you need to know about
Today (6th April) is the beginning of the 2020 tax year. Changes are still very much coming into force, even as the country tries to chart a course through the coronavirus epidemic and lock-down.
Even with so much pressure on businesses and personal finances, it’s essential we all keep our eye on the ball when it comes to our tax obligations. So, to help you understand the new rules and regulations, we’ve created this summary of the most important changes. You may wish to bookmark it for future reference.
2020 tax year changes – a guide
There’s a mixture of good news and bad news within the 2020 tax year changes, depending on your personal circumstances. Don’t forget – if you have any questions about the new rules, our team of accountants are very happy to help you.
Income Tax and National Insurance
The standard Personal Allowance for Income Tax remains the same at £12,500. Similarly, the income limit to qualify for this Personal Allowance in full remains at £100,000. Basic, higher and additional rate income tax rates stay static at 20%, 40% and 45% respectively. The tax bands are unchanged too. Basic rate is applied to income between £12,501 and £50,000, higher rate between £50,001 and £150,000, and additional rate on income of £150,001 and above.
However, the threshold for National Insurance contributions is changing from £8,632 to £9,500. This should see average annual savings of £104 per year for a full-time worker and £78 for the self-employed.
The flat-rate state pension is going up 3.9% to £175.20 per week, or £9,110.40 per year. People on the old state pension will now receive £134.25 per week (excluding top-ups), up from £129.20 per week. This is the equivalent of £6,981 per year.
You can save up to £40,000 tax free into your pension. However, until now, this tax-free allowance began to taper off once you earned more than £110,000 per year. Once you earned more than £210,000, you could pay only £10,000 tax-free into your pension. From today, the pensions taper will only be applied to earnings of more than £240,000 – although the minimum floor will drop from £10,000 to £4,000.
Inheritance Tax (IHT)
The main residence nil-rate band for IHT goes up to £175,000 from £150,000. This is applied when a residence is passed on (after death) to a direct descendant. Added to the standard IHT threshold, this means many families won’t have to pay IHT on estates valued at under £500,000. Couples will be able to pass on estates worth £1m or less without IHT being applied.
Capital Gains Tax
The CGT annual allowance is going up from £12,000 to £12,300. This is a modest increase in the allowance on CGT, which is applied to the profit you make when selling an asset such as property or shares.
Buy-to let changes
Mortgage tax relief is finally totally phased out for landlords from 6th April. For more information on this, please see our blog post on the topic. Our dedicated resource on Making Buy-to-Let more Profitable is also essential reading.
Other 2020 tax year changes
There are a few other changes that you may want to be aware of. These include:
- Junior ISA allowance more than doubled from £4,368 to £9,000.
- Student Loan repayment threshold up from £25,725 to £26,575.
- Prescriptions up 15p to £9.15 per item.
- TV licence fee up £3 to £157.50 per year.
If you have any questions about any of these changes to the tax system, please get in touch with our team of accountants. We may be working at home because of coronavirus, but we’re still very much available to help you.
About Karen Jones
Having worked for one of the world’s largest accountancy firms, Karen Jones uses her tax knowledge and skills to help clients obtain substantial reductions to their tax liabilities.
With an expanding portfolio of tax clients, Karen enjoys the variety her work brings her and particularly likes working with new businesses and people. With a growing number of tax clients, she frequently faces a variety of challenges and relishes the experience she gains as she solves them.
Karen likes the THP ethos: “I like the way the team has a professional, but friendly and down-to-earth approach – it creates a productive atmosphere that benefits everyone.”
Karen’s specialist skills:
- Personal Taxation
- Tax Efficient Planning
- Trust Administration