With everything going on in the world at the moment, it can be easy for other news and developments to pass by unacknowledged. For us, the end of the 2019/20 tax year was far from usual – with all of our staff working from home to undertake client instructions prior to the end of the tax year.
As with the start of any new tax year, the 2020/21 tax year brings individuals a refreshed set of allowances. Alongside this, a number of changes that had been previously announced have come into play. Here is a summary of these changes.
Changes to pension tapering
From 6 April 2020, the adjusted income limit for pension tapering rules increased to £240,000 (from £150,000) and the threshold income limit rose to £200,000 (increased from £110,000).
Although the new rules are a welcome relief for some, particularly those affected by these rules working tirelessly in the NHS, there is an added sting in the tail.
For those with adjusted income in excess of £240,000, not only do the tapering rules still apply, the annual allowance will continue to taper down to a reduced level of £4,000 (previously £10,000).
Therefore, anyone with an adjusted income of £312,000 will see a reduction in their annual allowance of £6,000.
Lifetime allowance for pensions
The lifetime allowance for pensions increased to £1,073,100 on 6 April 2020 in line with inflation.
Capital Gains Tax
The Capital Gains Tax (CGT) annual exempt amount for individuals increased to £12,300 for the 2020/21 tax year (the 2019/20 tax year allowance was £12,000).
As of 6 April 2020, Capital Gains Tax is now payable within 30 days of completion of a sale where CGT is realised. The process now involves submitting a provisional calculation of the gain to HMRC and paying the tax that is due.
Increase in NIC threshold
The threshold at which taxpayers start to pay NICs National Insurance Contributions (‘NICs’) increased from 6 April 2020 to £9,500 per annum. This rise is part of the Government’s commitment to reduce contributions by the low paid. The increase applies to both employed (Class 1) and self-employed (Class 4) individuals.
JISA Limit Increase
The Junior ISA allowance more than doubled from £4,368 to £9,000 per annum from 6 April 2020. For those setting aside money for children or grandchildren, this increase may provide a significant opportunity to boost savings.
RNRB increase
As of 6th April, the main residence nil-rate band increased to £175,000.
This is in addition to the existing nil-rate band, which is frozen at £325,000 until the end of 2020 to 2021. In effect, the increase now means that a married couple/civil partners between them have a combined Inheritance Tax free allowance of £1,000,000 to pass on to direct descendants.
The caveat on this is if the net value of the estate (after deducting any liabilities but before reliefs and exemptions) is above £2 million. In this situation, the additional nil-rate band will be tapered away by £1 for every £2 that the net value exceeds that amount.
Contact a Financial Adviser
For more information about any of these changes and how they might affect you, please get in touch with us.