Look out for these stealth taxes on 6 April
Sarah Coles, personal finance analyst at Hargreaves Lansdown, points out that when tax thresholds and allowances don’t rise in line with inflation or wage increases, it means that individuals are forced to pay more tax by stealth.
“It’s why we should do everything we can to avoid paying more tax than we need to – from taking advantage of ISAs to maximising pension contributions,” she explained.
With this in mind, Hargreaves Lansdown has highlighted 13 thresholds which remain unchanged in the next tax year, which will effectively leave us worse off:
- All other benefits are still frozen including Universal Credit, Child Benefit, Bereavement Support Payments, Housing Benefit, Employment and Support Allowance, Income Support and Jobseekers’ Allowance. The Benefit Cap also remains frozen.
- The Inheritance Tax Nil Rate Band remains at £325,000 – and all the gifting allowances are unchanged.
- The £50,000 threshold at which parents start to lose their Child Benefit is still in place.
- The £100,000 threshold at which people start to lose their Personal Allowance stays the same.
- The £150,000 threshold for Additional Rate Tax remains the same.
- The Dividend Allowance remains at £2,000.
- The Personal Savings Allowance remains at £1,000 for Basic Rate taxpayers, £500 for Higher Rate taxpayers and £0 for Additional Rate taxpayers.
- The Pensions Annual Allowance is still £40,000 (or your earnings if they’re lower).
- The Money Purchase Annual Allowance (how much you can tax-efficiently pay into a pension if you’ve already started drawing pension income) stays at £4,000.
- The overall ISA limit remains at £20,000
- The Lifetime ISA allowance is still £4,000 a year
- The Help to Buy limit remains at £1,200 for the first month and £200 a month thereafter.
- Stamp Duty threshold and bands are frozen.
Changes coming in next tax year
Nevertheless, it isn’t all bad news. Here are 10 areas where changes are due to be made:
Minimum contributions that must be paid into workplace pensions will rise from 5% (with at least 2% from the employer) to 8% (with at least 3% coming from the employer).
- State Pension
The State Pension will rise 2.6% – with the old Basic State Pension rising £3.25 to £129.20 a week, and the new State Pension rising £4.25 to £168.60 a week.
- Pension Lifetime Allowance
The Lifetime Allowance for pensions will increase with the Consumer Price Index (CPI) from £1,030,000 to £1,055,000.
- Tax thresholds
In England, the Personal Allowance (for those earning under £100,000) will rise from £11,850 to £12,500. The Higher Rate tax threshold rises from £46,350 to £50,000.
- Marriage Allowance
This will increase from £1,190 to £1,250, and the amount that can be saved will rise from £238 a year to £250.
- National Insurance
The threshold at which National Insurance is payable for employed people rises from £8,424 to £8,632, and the level at which it falls from 12% to 2% increases from £46,350 to £50,000.
The Universal Credit Work Allowance (the amount people can earn before benefits start to taper) will increase by £1,000 a year. Disability benefits and premiums will also rise, as will Widowed Parents’ Allowance, Maternity Allowance and Pay, Paternity Pay, Sick Pay, Pension Credit and all carer elements and premiums.
- Residence Nil Rate Band
The Residence Nil Rate Band is a specific allowance for leaving property to direct descendants such as children and grandchildren after your death. In April it rises from £125,000 to £150,000.
- Capital Gains Tax
The threshold rises from £11,700 to £12,000 for individuals.
- The Junior ISA allowance (and Child Trust Fund allowance)
The Junior ISA allowance rises from £4,260 to £4,368.