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April is the beginning of the new tax year – here’s what’s changed

The 2020/21 tax year kicked off on April 6, and with it comes a wave of changes you need to know about. We’ve put together some of the most important updates, so you’re prepared for the new tax year.

Income Tax

Your Personal Allowance is the amount of income that you can earn before you need to pay basic rate tax at 20%. The current standard Personal Allowance is £12,500 and this remains the same in the 2020/21 tax year in the UK.

You will find a table of the full list of income tax rates and bands on the government website.

What’s changed?

Pension Savings

The lifetime allowance (the maximum you can save into a pension before tax charges may apply) has risen from £1,055,000 to £1,073,000.

The pensions annual allowance is the amount someone can pay into their pension and receive a tax relief.  In the UK, people are permitted to save a maximum of £40,000 per year into their pension, whilst higher earners may be subject to a lower allowance.

Previously, any earnings above £110,000 would see the annual allowance start to taper off, until someone earning over £210,000 could only pay £10,000 into a pension. However, from now the threshold at which the annual allowance begins to taper off has risen to £240,000.

National Insurance Payments

The threshold for national insurance contributions has increased from £8,632 to £9,500 for the 2020/21 tax year. The new threshold means the average full-time worker will see their tax bill cut by £104 a year, and the typical self-employed worker by £78.

Capital Gains Tax

Capital Gains Tax is a tax on the profit when you sell an asset, such as a property or shares, that his increased in value. It’s worth noting that you do not pay Capital Gains Tax on your principle residence.

The annual Capital Gains Tax allowance has risen from £12,000 to £12,300.

Junior ISA’s

The annual limit that can be paid into a Junior ISA has more than doubled, rising from £4,368 to £9,000.

Junior ISA’s are savings accounts used by parents to save money for their child. The accounts can only be opened by parents, although other family members can contribute, and the money is not accessible to the child until they turn 18. As with all types of ISA, there is no tax to pay on interest or capital gains on growth.

Buy-To-Let

Mortgage tax relief for Buy-To-Let landlords has been gradually phased out since 2017. The new tax year marks the final phase of its removal – this will affect higher and additional rate taxpayers.

Landlords will now be unable to deduct mortgage expenses from their rental income to reduce the tax they pay. They will now receive a tax-credit, based on 20% of their mortgage interest payments.

What do I need to do?

The beginning of a new tax year could be a good time to check in with your Financial Adviser, if you have one. Or if you’d like to seek advice to ensure you’re full informed, you can contact one of the team here, or by using our Live Chat function.

An experienced Financial Adviser will assess your situation and make recommendations based on your circumstances. This article is not intended as personal advice.

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