The new tax year means changes to the amount you can earn before you pay tax. But April also brings changes to some benefits and the minimum wage. Find out if you’ll be better or worse off.
Income tax changes
The amount you can earn before you start paying income tax increases to £11,850. There are changes to other thresholds as well. This change takes effect from April 6th.
- The personal allowance increases to £11,850 from £11,500. This is the amount you can earn before you have to pay tax. If you’re a basic rate taxpayer, you’ll save £70 a year.
- The higher rate threshold increases to £46,350 from £45,000. This is the level at which you start paying tax at 40%. This will save you £336 a year if you pay tax at 40%.
- The additional rate threshold remains the same at £150,000. This is the level at which you pay tax at 45%.
SAVVY TIP: The transferable allowance for married couples and civil partners, where one is a basic rate taxpayer and the other earns below the personal allowance, rises to £1,185 from £1,150. You can read more about how the marriage allowance works in my article. It’s often called the married couples’ allowance, although technically that’s an allowance that was abolished for new claimants a number of years ago.
Income tax in Scotland
From April 6th, there will be new income tax bands in Scotland. I’ve listed all of them, including those that apply to England and Wales as well.
- Personal allowance: This will rise from £11,500 to £11,850. This is the part of your earnings or income that you don’t pay tax on.
- Starter rate: If you earn between £11,850 and £13,850, you pay tax at 19% on those earnings.
- Basic rate: You pay tax at 20% on your earnings between £13,850 and £24,000. The basic rate is the same as in the rest of the UK.
- Intermediate rate: You pay tax at 21% on earnings between £24,000 and £43,430.
- Higher rate: You pay tax at 41% on earnings between £43,430 and £150,000.
- Top rate: If you earn more than £150,000 a year, you’ll pay tax at 46% on those earnings.
SAVVY TIP: The tax bands in Scotland only apply to wages, pension payments and some other forms of income. Dividends are taxed as they are in the rest of the UK. You can compare Scottish income tax rates with those in the rest of the UK in my article.
The state pension will increase by 3% from April 9th. It will increase to £164.35 from £159.55. If you reached state pension age before April 6th 2016 and you only receive the basic state pension you’ll get £125.95 a week, up from £122.30. If you get a category B state pension (based on your husband’s NI record) your state pension rises to a maximum of £75.50 from £73.30. This pension can only be claimed by someone who reached state pension age before April 6th 2018.
The main inheritance tax threshold remains the same at £325,000. That’s the amount you can leave before inheritance tax is taken from the money you leave behind.
SAVVY TIP: It’s a bit more complicated than that because you can leave as much money as you’d like to your husband, wife or civil partner, and there’s no inheritance tax to pay.
However, the residential nil rate band is increasing by £25,000. This is a special allowance that lets you pass on the value of your home to your children (including step children and foster children) and grandchildren.
- The residential nil rate band is increasing to £125,000 from £100,000. If you add this to the existing band of £325,000, it means that the inheritance tax-free allowance will rise to £450,000 (or £900,000 for a married couple or couple in a civil partnership).
You can read more detail about The residential inheritance tax allowance in my article.
Capital Gains Tax
The allowance for individuals rises to £11,700 from £11,300. For trusts it rises to £5,850 from £5,650.
Taxation of Dividends
The amount you can receive in dividends before you pay tax falls from £5,000 a year to £2,000 a year.
The amount you can save or invest in an ISA remains at £20,000 a year. The allowance for junior ISAs rises to £4,260.
National Living Wage and Minimum Wage
If you’re aged 25 or over, you’re entitled to be paid the National Living Wage. If you’re under 25, your employer can legally pay you the Minimum Wage. The rates increased on April 1st.
- National Living Wage: rises to £7.83 an hour from £7.50
- Minimum Wage for those aged 21 – 24: rises to £7.38 an hour from £7.05
- Minimum Wage for those aged 18 – 20: rises to £5.90 an hour from £5.60
- Minimum Wage for those aged under 18: rises to £4.20 an hour from £4.05
- Apprentice rate: rises to £3.70 an hour from £3.50.
The amount you can earn before you pay back your student loan will rise from £21,000 a year to £25,000 a year. This applies to English and Welsh students who took out their loans from 1st September 2012 onwards.
The threshold works out at £2,083 a month or £480 a week. If you earn £25,000 a year or more, you’ll pay £30 a month less, according to the Student Loans Company.
For English and Welsh students who took out student loans before September 2012, plus all Scottish and Northern Ireland students, the earnings threshold will rise to £18,330 a year from £17,775.
You can read more about How student loans work in my article.
Automatic enrolment pension contribution increase
If you’re paying into a workplace pension through automatic enrolment, the amount you contribute will increase on April 6th.
- Employee: The amount you pay will rise to 2.4% of earnings, from 0.8%.
- Employer: The amount they pay will rise to 2% from 1%.
- Tax relief: The tax relief you get will rise to 0.6% from 0.2%.
SAVVY TIP: You can pay in more to your workplace pension, and your employer may contribute on your behalf. Ask them.
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