New tax year: changes coming in on 6 April
As we head into the new 2020/21 tax year, a number of allowances, rates and charges will change. This is what it will mean to the money in your pocket.
Several changes are due to come into force on 6 April – the first day of the new tax year – that could affect your personal finances.
We’ve listed the main ones below, but it’s worth pointing out that some changes could be delayed or scrapped given the ongoing coronavirus situation.
The average band D council tax in England for 2020/21 will rise by 4% but residents in Wales will see bills rise by up to 15%.
Energy price cap
Around 11 million households on pricey default tariffs will save an estimated £17 a year after regulator Ofgem announced the energy price cap will drop from £1,179 to £1,162 a year.
Four million households on pre-payment meters will also see bills fall by £17 as the current £1,217 limit will be cut to £1,200 between 1 April and 30 September 2020.
The energy price cap is set bi-annually and limits how much suppliers can charge for each unit of gas and electricity for customers on standard variable (default) tariffs and pre-payment (safeguard tariff) meters.
While it sets a maximum price suppliers can charge, it’s not a maximum bill. The amount customers pay is based on estimates of a typical household’s use.
Prescriptions will go up by 15p to £9.15 for each medicine or appliance dispensed from 1 April, in line with inflation.
The cost of prescription pre-payment certificates (PPC) – a ‘season ticket’ for patients who know they’ll have to pay for a lot of prescriptions – will also rise.
A three-month PPC will increase by 55p to £29.65 and a 12-month PPC will go from £104 to £105.90.
The cost of the annual TV licence will increase from £154.50 to £157.50 from 1 April.
Licence fee payers will receive a reminder or a payment plan reflecting the new amount when their licence is next due for renewal.
People buying or renewing a licence before 1 April 2020 will pay the old fee until their licence comes up for renewal.
An annual black and white licence will rise from £52.00 to £53.00.
The TV licence fee was due to be implemented for over-75s from June, but this has been pushed back to August due to the coronavirus outbreak.
Pay and tax
From April, both employees and the self-employed won’t have to pay National Insurance Contributions until they earn an annual salary of £9,500, up from the current threshold of £8,632.
The tax cut is expected to save the average employee £104 a year and the average self-employed person £78.
Crucially, anyone taken out of paying National Insurance won’t lose out on credits towards their state pension.
The National Living Wage (NLW) will increase from £8.21 to £8.72 an hour from April, adding an extra £930 to pay packets for full-time workers.
The government said this is the biggest cash increase ever, improving pay for 2.8 million people.
Younger workers under the age of 25 will also see the National Minimum Wage increase:
- 21-24-year olds – from £7.70 to £8.20 an hour
- 18-20-year olds – from £6.15 to £6.45 an hour
- 16-17-year-olds – from £4.35 to £4.55 an hour
- Apprentices will see rates rise from £3.90 to £4.15 an hour.
The amount you can earn without paying tax remains at £12,500.
Student loan repayment threshold
The employee earnings threshold for student loan plan 1 will rise to £19,390 per year, that’s £1,615.83 per month or £372.88 per week. The interest rate will drop from 1.75% to 1.1%.
The employee earnings threshold for student loan plan 2 will rise to £26,575 per year, £2,214.58 per month, or £511.05 per week. Student loan deductions remain at 9%.
Basic state pension
If you reached State Pension age before 6 April 2016, you’ll get the basic State Pension of up to £134.25 per week, up from £129.20 a week.
New state pension
If you reached State Pension age on or after 6 April 2016 you’ll get the new State Pension of up to £175.20, up from £168.60 a week.
Adult Dependency Increase
The Adult Dependency Increase (ADI) allows a retiree to claim a payment for a partner who is financially dependent on them. This tended to be aimed at male retirees who provided financially for an unwaged wife.
It typically boosts the state pension by up to £70 a week but the ADI was stopped for new claimants in April 2010 and from 6 April 2020, it will be abolished for existing recipients.
The Lifetime Allowance (LTA) is the maximum amount of pension savings you can build up without a tax charge. It will rise to £1,073m on 6 April, up from £1,055m.
Saving and banking
The Junior ISA (JISA) and Child Trust Fund annual subscription limit will increase from £4,368 to 9,000 for the 2020/21 tax year starting 6 April.
Under Financial Conduct Authority (FCA) rules to tackle the “dysfunctional” overdraft market, from April 2020, banks and building societies will no longer be able to charge customers higher prices for unarranged overdrafts in comparison to arranged overdrafts. Fixed daily or monthly charges, and fees for having an overdraft facility have also been banned.
However, a number of banks and building societies have hiked overdraft interest rates as a result – up to as high as 50%.
Capital Gains Tax
The deadline to pay CGT after the sale of a residential property in the UK will change from 6 April.
From that date, landlords and second or holiday home owners who sell their property, will have just 30 calendar days to inform HMRC about the sale and make a CGT tax payment. Failure to do so will result in a penalty and interest on the amount owed.
This is a drastic cut from the current payment window. Until 5 April 2020, property owners disposing of an asset will have until 31 January 2022 (the self-assessment tax return deadline) to pay their CGT bill– that’s 22 months maximum.
However, for completions which fall on or after 6 April 2020, CGT will need to be paid within 30 days.
The new rules apply to the sale of residential property only and do not apply to other assets such as shares or personal possessions.
Previously landlords could deduct their full mortgage interest costs from their income when calculating their tax bill, though this has been falling to 75% and 50%. For 2020/21, all financing costs incurred by a landlord will be given as a basic rate tax reduction.
Residence nil-rate band
Property worth up to £1m can be inherited tax-free from 6 April as part of the main residence nil-rate band.
Estates are currently taxed at 40% for anything above the £325,000 limit for single people, or £650,000 for married couples or civil partners.
An additional £100,000 per person was introduced in 2017 to offset the value of the family home, taking the allowance for single people to £425,000 and £850,000 for couples. The additional allowance has risen in stages over the years and will be £175,000 by 2020/21, allowing a family home worth up to £1m to be passed on to direct descendants free of inheritance tax.