As we have entered the new tax year, we thought it would be helpful to remind you of the changes that were revealed during the autumn Budget and how these may affect you.
Personal Allowance
For those earning under £100,000 per annum the first £12,500 of income is paid tax-free, compared to £11,850 in the previous tax year. This is called your personal allowance. This equates to a tax saving of £130 per annum.
For those earning between £100,000 and £125,000, your personal allowance is gradually lost, increasing your overall tax bill. To give you an example:
Earnings Bracket Personal Allowance 2019/20
Under £100,000 £12,500
Between £100,000 – £125,000 Decreases from £12,500 by £1 for every £2 you earn above £100,000 until it reaches £0
Above £125,000 £0
There are planning opportunities to get your personal allowance back and reduce the tax that you pay if you would like to know more please get in touch.
How your income tax brackets have changed
Tax year 2018/19 2019/20
Tax-free Personal Allowance £11,850 £12,500
Basic Rate Tax £11,850 – £46,350 £12,500 – £50,000
Higher Rate Tax £46,350 – £150,000 £50,000 – £150,000
Additional Rate Tax £150,000+ £150,000+
Because of the changes to the tax brackets, if you are a higher rate taxpayer earning under £100,000, this will equate to a tax saving of £860 per annum.
How your annual capital gains tax allowance has changed
Tax year 2018/19 2019/20
Capital Gains £11,700 £12,000
Capital Gains tax is a tax on the gain when you sell or dispose of an asset. It is the gain that is taxed – not the amount of money that you receive. Everyone can receive gains of up to £12,000 tax-free each year. Depending on whether you are a basic rate or higher tax rate payer, gains of more than £12,000 are taxed at the following rates.
Annual exempt amount £12,000 for individuals
Standard CGT Rate 18% on residential Property, 10% on other assets
Higher/ Additional CGT Rate 28% on residential Property, 20% on other assets
Inheritance Tax
The ‘Nil Rate Band’ is the amount that can be passed on to your descendants free of Inheritance Tax when you die. The value of your estate in excess of the Nil Rate Band is taxed at 40%. The Nil rate band for 2019/20 is £325,000 (£650,000 for a married couple) and this has not changed.
From the 6 April 2017, an additional allowance called the ‘Residence Nil Rate Band’ was introduced. This now stands at £150,000 (£300,000 for a married couple). This allowance is for estates with a residential property that is passed on to direct descendants (children). The increases to the Residence Nil Rate Band are shown below:
Tax Year 2018/19 2019/20 2020/21
Residence Nil Rate Band £125,000 £150,000 £175,000
This will increase in line with the CPI thereafter. There are specific rules around this allowance, so if you would like to know more, please get in touch.
Dividend Tax
You have an annual dividend allowance of £2,000 per annum. This is unchanged from the last tax year.
Self-assessment Tax Returns
Do you submit Self-assessment tax returns? The next deadline for submitting your tax return for the tax year that has recently ended (2018/19) is 31st January 2020.
Lifetime Allowance
The Lifetime Allowance limit (LTA) is the limit on the total value you can build up in your pensions without suffering a tax charge. This is increasing as below and will increase in line with the Consumer Price Index each year.
Tax Year 2018/19 2019/20
Lifetime Allowance £1,030,000 £1,055,000
There may be planning opportunities to reduce your LTA tax charge, so please get in touch if you would like to know more.
JISA
Although the ISA limit remains unchanged at £20,000 for this year, the Junior ISA (JISA) limit has increased. For those of you with children (and grandchildren) who do not have an existing Child Trust Fund, a Junior ISA is a tax efficient way to build up funds for the future. They work in a similar way to an adult ISA, however, you cannot take money out of a junior ISA until the child reaches 18 years of age.
Tax Year 2018/19 2019/20
Junior ISA £4,260 £4,368
Although we’re sure, that if you’re anything like us, your thoughts are on planning your summer holiday and not tax planning, the earlier you start to think about it and take advantage of the opportunities available to you, the better. Should you have any questions or would like to chat to us about your specific situation, please do get in touch.
