Preparing for the new tax year
One of the few certainties about 2019 is that the new tax rates and thresholds will take effect from the start of the 2019/20 tax year on 6 April.
One of the few certainties about 2019 is that the new tax rates and thresholds will take effect from the start of the 2019/20 tax year on 6 April.
Whilst the focus tends to be on year end tax planning at this time of year, it is important to look forward to the new tax year and the changes that it will bring.
From 2019/20 changes will come into effect for key income tax rates and thresholds, as well as pensions.
There are two inflation-busting income tax changes:
The personal allowance and higher rate threshold will remain unchanged in 2020/21, so the impact of the above-inflation increase will be soon eroded.
A corollary of the increased higher rate threshold, outside Scotland, is that the upper limit of earnings on which full rate employee/self-employed National Insurance Contributions (NICs) are payable will also rise to £50,000.
The net effect is to claw back a significant slice of the income tax saving and, in Scotland, leave earnings in a band between £43,430 and £50,000 suffering a combined income tax (41%) and NICs rate (12% for employees) of up to 53%.
The ceiling for automatic enrolment pension contributions will also increase to £50,000. This, combined with the increase in the minimum overall contribution rate from 5% to 8% means, in many instances, a jump in employee net contributions of about two thirds from the current level. So if the new higher rate threshold takes you out of higher rate tax, your net contributions could more than double.
The other change affecting pensions is a small increase in the lifetime allowance of £25,000 – this sets the maximum tax-efficient value of pension benefits at £1.055 million.
For more information on how these changes will affect you and how you might counter some of the unwelcome side effects, please talk to us, before the end of the current tax year.
The value of tax reliefs depends on your individual circumstances.
Tax laws can change.
The Financial Conduct Authority does not regulate tax advice.
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