It could come as good or bad news that there are relatively few substantial tax changes taking place in 2020/21.
On one hand, there aren’t many new opportunities to save on your tax bill over the next year – but on the other, most people will appreciate a sense of continuity, and minimal increases to what they might have to pay.
Income tax bands and rates in England, Wales and Northern Ireland will remain the same over the next tax year, while in Scotland the bands will only be slightly adjusted for inflation.
Corporation tax will also remain at the rate of 19%, as previous plans to reduce it to 17% have been cancelled.
Despite speculation before Spring Budget 2020 that inheritance tax would be reformed, there were no major announcements about the way it applies.
And, despite plans to extend reforms to the off-payroll working rules known as IR35 to the private sector from April 2020, this measure has been postponed to ease the pressure on businesses and individuals adversely affected by the coronavirus outbreak.
There are a few areas that are changing this April, however. Here’s our round-up of the five main tax changes for individuals.
National insurance threshold to rise
From 6 April 2020, the threshold for class 1 National Insurance (NI) will increase from £8,632 to £9,500.
This type of NI is paid by employees who earn more than £166 a week and are under the state pension age.
As part of his Spring Budget 2020 speech, Chancellor Rishi Sunak said this measure would offer a tax cut to 31 million people, and save a typical employee over £100.
Higher lifetime allowance for pension contributions
The lifetime allowance is a limit on the value your pension pots can reach before incurring an extra tax charge.
In 2019/20, this stands at £1,055,000, but in 2020/21 it will increase to £1,073,100.
More tax-free savings for children
The maximum amount you can save into a junior ISA in a year is more than doubling in the 2020/21 tax year, from £4,368 to £9,000.
You can use a junior ISA to save tax-free for a child aged under 18.
The residence nil-rate band was introduced in April 2017, and provides an additional band in which no inheritance tax needs to be paid when someone passes their main home on to direct descendants.
It has been gradually increasing since then, and in 2020/21 the final planned increase will take place, taking the band to £175,000.
This works on top of the existing £325,000 nil-rate band, and can be shared between spouses or civil partners, offering a potential allowance of £1 million in total.
Changes to capital gains tax on residential property
A series of changes to the way capital gains tax applies to residential property are coming into effect in the 2020/21 tax year.
Landlords in particular are likely to be affected, as adjustments are made to letting relief and private residence relief, along with a new deadline for reporting gains from the sale of a residential property that is not your main home.
The following changes will take place from 6 April:
- Letting relief will only apply where landlords occupied the property at the same time as their tenant.
- The final period exemption for private residence relief will be cut from 18 months to nine months.
- Any capital gains tax due on the sale of a residential property will need to be reported and paid within 30 days of the sale being completed.
Speak to us about personal tax planning.
Manager – Personal Tax