The new tax year starts on April 6th and that means increases to the amount of money you can earn before you need to start paying tax. Here are the main changes:
Income tax in England, Wales and Northern Ireland
The amount you can earn before you start paying income tax increases to £12,500. There are changes to other thresholds as well.
- The personal allowance increases from £11,850 to £12,500 a year. This is the amount you can earn before you have to pay tax. If you’re a basic rate taxpayer, you’ll save £130 a year.
- If you earn anything between £12,501 and £50,000 a year, you will pay the basic rate of tax at 20%.
- If you earn anything between £50,001 and £150,000 a year, you will pay tax on that part of your income at 40%. That’s an increase from £46,351 in the tax year to April 5th.
- If you earn above £150,000 a year, you will pay tax on that part of your income 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 £1,250 from £1,190. You can read more about how the marriage allowance works in my article.
Income tax in Scotland
Scotland has different income tax rates and thresholds. And from April 6th 2019, these will increase.
- Personal allowance: this will rise from £11,850 to £12,500 a year. This is the part of your earnings or income that you don’t pay tax on.
- Starter rate: if you earn between £12,501 and £14,549 a year, you pay tax at 19% on those earnings. This is an increase from between £11,850 and £13,850 a year.
- Basic rate: if you earn between £14,550 and £24,944 a year, you pay tax at 20% on those earnings. This is an increase from between £13,850 and £24,000 a year.
- Intermediate rate: if you earn between £24,945 and £43,430 a year, you pay tax at 21% on those earnings. This is an increase from between £24,000 and £43,430.
- Higher rate: if you earn between £43,431 and £150,000 a year, you pay tax at 41% on those earnings. This is the same as last year.
- Top rate: if you earn more that £150,000 a year, you pay tax at 46% on those earnings. This is the same as last year.
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 0% savings band is frozen at £5,000. This means you can receive up to £17,500 a year (£5,000 plus personal allowance of £12,500) in interest from your savings and pay no tax, if you have no other income. You also get a personal savings allowance of £1,000 (for basic rate taxpayers, it’s only £500 for higher rate). This means you can receive up to £1,000 (or £500) in interest on savings tax free. So in all, you could get up to £18,500 in income from savings and pay no tax on it.
- The state pension will increase by 2.6% to £168.60 a week from £164.35. This is the maximum you can get if you build up your state pension under the system introduced on April 6th.
- If you reached state pension age before April 6th 2016 and you only receive the basic state pension you’ll get £129.20 a week up from £125.95 a week.
- If you get a category B state pension (based on your husband’s National Insurance record) your state pension rises to a maximum of £77.45 a week from £75.50. 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 has to be paid on 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 £150,000 from £125,000. If you add this to the existing band of £325,000, it means that the inheritance tax-free allowance will rise to £475,000 (or £950,000 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 rates at which you pay capital gains tax haven’t changed, but the allowance has from £11,700 to £12,000. For trustees, the annual exemption is up from £5,850 to £6,000.
You pay capital gains tax at:
- 10% if you’re a basic rate taxpayer and you’re selling shares or another investment;
- 18% if you’re a basic rate taxpayer and you’re selling a property;
- 20% if you’re a higher rate taxpayer and you’re selling shares or another investment;
- 28% if you’re a higher rate taxpayer and you’re selling a property.
Taxation of Dividends
The amount you can receive in dividends before you pay tax is frozen at £2,000 a year.
The amount you can save or invest in an ISA remains at £20,000 a year. The annual allowance for junior ISAs rises from £4,260 to £4,368.
The amount you can earn before you pay back your student loan will rise from £25,000 a year to £25,725 a year. This applies to English and Welsh students who took out their loans from 1st September 2012 onwards.
The threshold works out at £2,143.75 a month or £494.71 a week.
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 £18,935 a year from £18,330 a year.
You can read more about how student loans work in my article.
Workplace pension contributions rising
If you’ve been automatically enrolled into your employer’s pension, the amount you’ll pay into it will also increase from April 6th. At the moment, anyone who’s automatically enrolled pays 2.4% of their salary into their workplace pension. You then get tax relief, to bring the contribution up to 3%. Tax relief just means that some of the tax you’d otherwise pay to the government is paid into your pension for you.
Your employer also has to pay in 2%, which means that a total of 5% of your salary goes into your pension.
SAVVY TIP: Scotland has different income tax bands compared to the rest of the UK. So, if you pay income tax in Scotland, the tax relief that goes into your pension will be based on the income tax rate you pay. The only exception is if you pay tax at the starter rate, in which case you can still claim tax relief at 20%.
- From April 6th, you will pay approximately 4% of your salary into your workplace pension. The government will add 1% through tax relief (if you’re a basic rate taxpayer) and your employer will pay in 3%. This means that 8% of your salary will be paid into your workplace pension.
- If you earn £27,600 a year (before tax), which is close to the UK average salary, your monthly contribution into your pension will be £89.97 a month from April 6th. That compares to £53.92 in the tax year 2018 – 19.
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