April 6 heralds the start of the new tax year, which sees the personal allowance for income tax unchanged, but a hike in the threshold for national insurance contributions (NICs) and a delay to promised reforms to the IR35 off payroll employment rules. We summarise the new tax year changes below:
Personal allowance and NIC’s threshold
For the 2020/21 tax year, the personal allowance remains at £12,500 but the threshold for NICs has increased above inflation as part of the government’s pledge to bring the two regimes into line.
The NICs threshold is now £9,500, up from £8,632. As a result, the average full-time worker will see their tax bill cut by £104 a year, and the typical self-employed worker by £78.
The national living wage (NLW) for workers aged 25 and over increased by 6.2% to £8.72 an hour from 1 April. Workers aged 21 to 24 saw their hourly rate increase from £7.70 to £8.20, while those aged 18 to 20 saw a rise of 30p to £6.45 an hour.
For people aged 18 and under, their hourly rate went up by 20p to £4.55. The minimum wage for apprentices also increased, from £3.90 to £4.15.
From 6 April, the pensions lifetime allowance will rise, up from £1,055,000 to £1,073,000. The Treasury will raise the threshold at which the tapered annual allowance kicks in by £90,000 from £150,000 to £240,000 for the tax year 2020-21, to address concerns that senior doctors were retiring or cutting hours to avoid pension penalties.
The state pension will go up by 3.9% in April, the biggest rise since 2012. This means those receiving the new state pension (who reached pension age after 6 April 2016) will see an increase of £6.60 a week to £175.20. Those claiming the old state pension will see their basic payment increase by £5.05 a week to £134.25. At the same time, note that the imposition of the BBC TV licence charge on over 75s has been delayed to 1 August 2019 due to the coronavirus pandemic.
The amount that graduates can earn before starting to repay their student loan will increase from £25,725 to £26,575.
The maximum amount parents can save in a junior Isa for their child is doubling, increasing from £4,368 to £9,000 a year from 6 April.
The inheritance tax (IHT) nil rate band of £325,000 remains unchanged, but residence nil rate band, which is a relief for those passing on their main home to direct descendants will be increased to £175,000.
This tax year also sees the culmination of changes to the tax regime for buy-to-let landlords, who are no long able to claim mortgage tax relief.
Landlords can no longer deduct mortgage expenses from their rental income to reduce the tax they pay. Instead, they will receive a tax-credit, based on 20% of their mortgage interest payments. Landlords selling up will also be affected by new capital gains tax (CGT) rules, which come into effect in April.