The new tax year started on 6 April 2019 and several changes have been made:
The tax-free Personal Allowance is the amount of income you can earn before you start paying Income Tax. All individuals are entitled to the same Personal Allowance, regardless of their age.
The Personal Allowance has increased to £12,500 for the 2019/20 tax year, from £11,850 for the 2018/19 tax year. This means you can earn £650 more before you start paying Income Tax, a saving of £130. However, for higher earners, the Personal Allowance is reduced by £1 for every £2 of adjusted net income above £100,000.
The Marriage Allowance allows a non-taxpayer to transfer £1,250 (in the 2019/20 tax year) of their unused Personal Allowance to their spouse or registered civil partner (a potential saving of £250 in tax), as long as the recipient is a basic rate taxpayer. We have covered the Marriage Allowance and how to apply for it in a separate article.
Basic rate tax (20%) is payable on an individual’s income between the Personal Allowance (£12,500) and the higher rate tax threshold, which has increased from £46,350 to £50,000 for the 2019/20 tax year (a lower threshold applies for Scotland).
The Dividend Allowance remains at £2,000 for the 2019/20 tax year. Any dividend income that investors earn above the £2,000 allowance will be liable for tax at 7.5% for basic rate taxpayers, while higher rate taxpayers will be taxed at 32.5% and additional rate taxpayers at 38.1%.
The taxation of dividend income impacts on shareholders of private limited companies paying themselves in the form of dividends. Investors with portfolios that produce an income in the form of dividends of more than £2,000 a year, which are held outside ISAs or pensions, also need to be mindful of this.
Personal Savings Allowance
The Personal Savings Allowance remains at £1,000 for basic rate taxpayers, £500 for higher rate taxpayers and £0 for additional rate taxpayers. This is the amount of savings interest you can earn tax-free.
As few people are likely to exceed the Personal Savings Allowance, most savings interest (for example on bank and building society accounts) is now paid gross.
National Insurance Contributions (NICs)
Employee NICs will be charged at 12% of income on earnings above £8,632 (up from £8,424 in 2018/19) until you are earning more than £50,000, after which the rate drops to 2% on the excess.
Qualifying years for state pension and other contribution-based benefits still apply for annual earnings above £6,136.
Although the standard nil-rate band is frozen at £325,000, the residence nil-rate band (RNRB) has risen from £125,000 to £150,000 for 2019/20 tax year. The RNRB enables eligible people to pass on a property to direct descendants and potentially save on death duties.
Capital Gains Tax
Capital Gains Tax is charged on profits that are made when certain assets are either transferred or sold. There’s no tax to pay if all gains made in a tax year fall within the annual Capital Gains Tax exemption. For the 2019/20 tax year, this will be £12,000 (up from £11,700 for the 2018/19 tax year).
Auto enrolment contributions
Auto enrolment contribution rates have increased for both employees and employers. From 6 April 2019, the total minimum contribution is 8%, with employers contributing a minimum of 3% and employees contributing the difference (with tax relief). This increased from a total minimum contribution of 5% in the 2018/19 tax year and 2% in the 2017/18 tax year, so if you are enrolled in a workplace pension it is likely your contributions have increased.
We will cover workplace pensions in a separate article.
Information is based on our understanding of current tax legislation and regulations, which are subject to change. We are not authorised to provide tax advice, but will take your tax position into consideration when providing financial advice, and aim to maximise tax efficiency where appropriate.
The area of taxation is not regulated by the Financial Conduct Authority (FCA).