A New Tax Year: Are You Prepared?

A new tax year commenced on the 6th April and a whole new set of reforms came with it. They can often be rather difficult to understand, particularly if you are one of the lucky few who have to complete a self assessment. The changes range from income tax right through to pensions, so let’s take a brief look at them and how they may affect you:

Income Tax

Tax free personal allowance will increase this year from £10,000 to £10,600. It will also be the first year people born between the 6th April 1938 and 5th April 1948 will have the same allowance as working age people, as their allowance has only increased by £100. The higher rate tax threshold is rising to £42,385 and the starting rate of income tax on savings will be cut from 10% to 0% on savings up to £5,000. Couples allowance means that people who are married or in a civil partnership are able to transfer up to £1,060 of their tax free allowance to their partner but only if neither of them pay more than the basic rate of income tax. Lastly, married couple’s allowance, which is only available if one partner was born before the 6th April 1935 has been increased to a maximum of £8,355 and a minimum of £3,220.

If you have overpaid tax, you will be able to choose between a refund or saving it for future tax bills.

National Insurance

National Insurance has one change this tax year. The Class 2 rate of contributions is increasing from £2.75 to £2.80. Class 3 contributions are increasing from £13.90 to £14.10.

State Pension

The basic state pension is increasing by 2.5 per cent or to £2.85 per week to a maximum of £115.95 per week. The maximum amount that pensioners who are on low incomes can receive with the addition of pension credit is £151.20 for a single person or £230.85 for a couple.

Pension Lump Sums

Under new rules, you can now withdraw your pension in one lump sum, however it will be subject to be taxed at your marginal rate of income tax (e.g. 20%, 40%) rather than 55% as was previously claimed.

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Inherited Pensions

Tax on inherited pensions is scrapped if the pension holder dies before they reach age 75.

Isa Allowances

The tax free annual Isa allowance will increase from £15,000 to £15,240. The junior Isa annual allowance will increase from £4000 to £4,080. The child trust fund allowance will also increase to the same amount.

Tax Credits and Child Benefit

Working Tax Credits are increasing by small amounts.

Basic element: £1,960.

Couple and lone parent element: £2,010.

30 hour element: £810.

Disabled worker element: £2,970.

Severe disability element: £1,275.

The Childcare element will be frozen at £175 for one child/ £300 per week for two or more children. For Child Tax Credits, the family element is frozen at £545 a year, but there are small changes to other elements.

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If you have a high income and you claim Child Benefit, you may need to complete a self assessment.

Child element: £2,780.

Disabled child element: £3,140.

Severely disabled child element: £1,275.

Child Benefit is increasing by 20p a week to £20.70 for the first child and to £13.70 for the second and subsequent children. Guardian’s allowance is increasing by 20p a week to £16.55.

Maternity and Paternity Pay

The statutory rate of maternity and paternity pay is increasing from £138.18 to £139.58 per week.

Air Passenger Duty

Children who are under the age of 12 won’t have to pay Air Passenger Duty on economy class tickets from 1st May.

 

 

This is only a basic guide to the changes. If you are unsure of anything, make sure to dial the HMRC Helpline who will be able to assist you further.

 

 

 

 

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