Start the new tax year with your eyes wide open: Check whether you will be a winner or loser from April 2019
- Most people will pay less income tax as personal allowance rises to £12,500
- Gains made by higher-rate taxpayers will be diluted by hikes in NI contributions
- The sum you can save with marriage allowance to increase from £238 to £250
The new tax year starts this Saturday and with it comes the usual infuriating hotchpotch of changes to our income, pension and savings allowances.
Here, we run through the potential winners and losers for 2019 to 2020…
A BOOST AS INCOME TAX BILLS FALL
From April 6, most people will pay less income tax.
This is because the personal allowance — the amount you can earn before paying any tax — rises by £650 to £12,500.
It means around 26 million workers who pay the basic rate of tax will keep an extra £130 in their pockets over the year, according to figures from accountant Deloitte.
The point at which you begin paying the higher rate of tax is also increasing, from £34,500 to £37,500. Different figures apply to Scotland (see below).
So you will not pay the higher rate of tax until your total income hits £50,000 (£37,500 plus the £12,500 tax-free personal allowance), compared to £46,350 now.
This means higher-rate payers with incomes up to £125,000 should see savings of up to £830 — or £600 if their income is over this level.
…BUT SOME IS CLAWED BACK FOR HIGH EARNERS
Gains made by higher-rate taxpayers will be watered down by hikes in Class 1 National Insurance contributions.
The lower threshold at which you start paying contributions will rise from £8,424 to £8,632 from April 6.
But the upper earnings threshold, where the rate drops from 12 per cent to 2 per cent, will shoot up from £46,350 to £50,000.
The net effect is a £25 saving in National Insurance for basic-rate payers, while higher earners will pay £340 extra, says Deloitte.
A BENEFIT OF MARRIAGE
The amount you can save by using the marriage allowance will increase marginally from £238 to £250 for the next tax year.
This tax break was introduced in 2015 to help married couples and civil partners where one earns less than the other.
The taxman lets the lower earner transfer 10 per cent of any unused personal allowance to the higher earner — so £1,250 from April 6.
To qualify, the higher earner’s income must be between £12,500 and £50,000, or £43,430 if you’re in Scotland.
Meanwhile, the separate married couple’s allowance, where one partner was born on or before April 5, 1935, will rise to between £345 and £891.50 depending on your income — up from £336 to £869.50.
You cannot claim both allowances, but pensioners who are old enough will be better off going for this one.
PENSIONS AND SAVINGS
The maximum amount you can take from your pension without triggering extra tax — the lifetime allowance — will rise from £1.03 million to £1.055 million.
This limit applies to the total of all the pensions you have accumulated, but excludes the state pension.
The amount you can pay into your pension each year — the annual allowance — will remain capped at £40,000.
Meanwhile, the old basic state pension will rise by £3.25 a week to £129.20, while the new state pension will go up by £4.25 to a maximum of £168.60 a week.
The minimum contribution under the Government’s auto-enrolment workplace pensions is also rising from 5 per cent to 8 per cent of qualifying earnings — with at least 3 per cent coming from the employer and 5 per cent from staff.
Figures from financial adviser AJ Bell show a worker earning a £30,000 salary making the minimum contributions will pay £955 a year, instead of £575.
It will also cost more if you want to boost your state pension by buying voluntary Class 3 National Insurance contributions.
Anyone covered by the new state pension system with a gap in their National Insurance record for years between 2006/07 and 2015/16 has until April 2023 to fill those gaps. From April 6, though, the cost will rise to £780 for each year, up to £153 more.
The annual Isa subscription limit will remain at £20,000.
The amount you can pay into your pension each year will remain capped at £40,000
The inheritance tax allowance on which you pay no tax has been frozen yet again at £325,000, or £650,000 for spouses and civil partners.
Anything above this is taxed at 40 per cent.
However, there is now also the main residence allowance, which allows you to leave extra to direct descendants — such as children and grandchildren — if your money is tied up in your main residence.
This limit will rise by £25,000 to £150,000 in the next tax year. You start to lose the allowance once joint assets exceed £2 million.
BUY-TO-LET PROFIT HIT
Higher-rate taxpayers buying rental properties with a mortgage are to pay more tax.
From Saturday, landlords will only be able to deduct a quarter of the interest they pay on their mortgage from the rental income they declare to the taxman — down from 50 per cent.
By 2020/2021, they will not be able to deduct anything. Instead a new 20 per cent mortgage interest tax credit will be phased in.