Start of new tax year brings in raft of fiscal changes

The 6 April start of the new tax year saw important fiscal changes come into effect, including the changes to the deadline for sellers of residential property who are liable for capital gains tax (CGT).The personal allowance for income tax is unchanged, but a hike in the threshold for national insurance contributions (NICs) and a delay to promised reforms to the IR35 off payroll employment rules

For the 2020/21 tax year, the personal allowance remains at £12,500 but the threshold for NICs has increased above inflation as part of the government’s pledge to bring the two regimes into line.

The NICs threshold is now £9,500, up from £8,632. As a result, the average full-time worker will see their tax bill cut by £104 a year, and the typical self-employed worker by £78.

The national living wage (NLW) for workers aged 25 and over increased by 6.2% to £8.72 an hour from 1 April. Workers aged 21 to 24 saw their hourly rate increase from £7.70 to £8.20, while those aged 18 to 20 saw a rise of 30p to £6.45 an hour.

For people aged 18 and under, their hourly rate went up by 20p to £4.55. The minimum wage for apprentices also increased, from £3.90 to £4.15.

Pensions

From 6 April, the pensions lifetime allowance will rise, up from £1,055,000 to £1,073,000. The Treasury will raise the threshold at which the tapered annual allowance kicks in by £90,000 from £150,000 to £240,000 for the tax year 2020-21, to address concerns that senior doctors were retiring or cutting hours to avoid pension penalties.

The state pension will go up by 3.9% in April, the biggest rise since 2012. This means those receiving the new state pension (who reached pension age after 6 April 2016) will see an increase of £6.60 a week to £175.20. Those claiming the old state pension will see their basic payment increase by £5.05 a week to £134.25. At the same time, note that the imposition of the BBC TV licence charge on over 75s has been delayed to 1 August 2019 due to the coronavirus pandemic.

The amount that graduates can earn before starting to repay their student loan will increase from £25,725 to £26,575.

The maximum amount parents can save in a junior Isa for their child is doubling, increasing from £4,368 to £9,000 a year from 6 April.

The inheritance tax (IHT) nil rate band of £325,000 remains unchanged, but residence nil rate band, which is a relief for those passing on their main home to direct descendants will be increased to £175,000.

Property taxes

This tax year also sees the culmination of changes to the tax regime for buy-to-let landlords, who are no long able to claim mortgage tax relief.

Landlords can no longer deduct mortgage expenses from their rental income to reduce the tax they pay. Instead, they will receive a tax-credit, based on 20% of their mortgage interest payments. Landlords selling up will also be affected by new capital gains tax (CGT) rules, which come into effect in April.

From 6 April 2020, if a UK resident sells a residential property in the UK, they will have 30 days to tell HMRC and pay any money owed. The seller must submit a standalone tax return covering the CGT, which can no longer be included as part of a self assessment return.

Failure to tell HMRC about any CGT within 30 days of completion may incur a penalty, as well as interest on the sum owed.

IR35 contractors

There is a significant change to the government’s original plans, in that the coronavirus crisis has seen a deferral of changes to the IR35 regime, which would have seen private sector employers assume responsibility for determining the tax status of off payroll workers. These new regulations will now take effect from April 2021.

Other changes

Other fiscal changes for 2020/21 include greener benefit rates for employer-provided cars and an increase in the flat rate income tax deduction for homeworkers.

Also, as the government continues to promote greener business motoring, it has introduced new emissions tests and reduced benefit rates for cleaner vehicles.

The new Worldwide harmonised Light vehicle Test Procedure (WLTP) is more accurate than the New European Driving Cycle (NEDC) test it is replacing. The WLTP is expected to show higher vehicle carbon dioxide (CO2) emissions; however, for cars registered before 6 April 2020, the NEDC test will still be used.

For most company cars registered from 6 April 2020 car benefit rates will be reduced by two percentage points for 2020/21 from the rates previously announced. Additionally, all zero-emission models, regardless of when they were registered, will be subject to a 0% rate.

Finally, the flat rate income tax deduction, which is available to employees to cover additional household expenses where employees work at home, has risen. This was set at a rate of £4 per week but rose to £6 per week from 6 April.

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