April 6th marks the start of a new tax year, and with lots of new changes taking effect there may be big consequences for your personal finances.
There has been lots of publicity about the broad changes to personal finance such as the National Living Wage and the increased tax-free personal allowance on income. With the sheer amount of announcements in the numerous budgets over the past year however, some of the new policies may have passed you by. Here are some of the big changes you need to be aware of for the coming financial year.
- As of the 6th April, those with a taxable income of between £17,000 and £43,000 per year will be eligible for a £1,000 tax-free allowance. This means they are able to earn up to £1,000 in savings income without paying tax on it. Those earning over £43,000 will receive a tax-free allowance of £500 per year.
- The Isa allowance remains frozen at £15,240, however the peer-to-peer Isa will be introduced allowing returns from investments in peer-to-peer loans to grow tax-free.
- The basic state pension will increase from a maximum of £115.95 per week to £119.30.
- The lifetime pension allowance will be reduced from £1.25 million to £1 million, so if your pension pot exceeds this amount you will have to pay tax on anything above it. The rate of tax you will pay depends on how the money is paid to you. If you take it as a lump sum you will pay 55% tax, if you take it any other way the tax rate is reduced to 25%.
- You will no longer be able to contract out of the additional state pension (known as second State Pension or SERPs). Those paying into a company pension scheme paid a reduced rate of national insurance, however those that previously paid this reduced rate will no longer receive the 1.4% rebate.
- There will be a new dividend tax allowance. The £5,000 of dividend income in each tax year will be tax-free. Anything above this amount will be taxed at 7.5% for basic-rate taxpayers, 32.5% for higher-rate taxpayers and 38.1% for additional-rate taxpayers. Under the previous system, basic-rate taxpayers paid no tax on their dividend income. Dividend income is still eligible for the personal allowance however and will remain tax-free in Isas.
- Insurance premium tax will rise again. This will increase from 9.5% introduced back in November to 10% from the 1st October this year. This means car, pet, home and private medical insurance bills will go up. Premium tax was increased from 6% in November, which means that in less than one year it will have jumped to 10%.