New tax year, new set of rules
A new tax year started today (6th April) bringing with it a new set of rules. Here we look at the key details and how it may affect you and your business. As ever if you have any queries do not hesitate to contact us – we are here to help.
Income tax and national insurance (NIC)
Personal rate allowance remains the same at £12,500, but the threshold for NIC is increasing above inflation.
These changes are following the Chancellor’s announcement in the 2020 budget, where he pledged to increase the point at which taxpayers start to pay National Insurance over several years until it is in line with the personal allowance.
The threshold from which both employed and self-employed workers start paying national insurance will rise from £8,632 to £9,500, and any earnings above this are subject to 12% NIC.
From 6th April, pension lifetime allowances will also increase 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.
The state pension will also go up by 3.9% in April, this is the biggest rise since 2012.
Inheritance Tax (IHT)
The nil-rate IHT band for anyone passing the family home to their direct descendants increases to £500,000 from 6th April.
The family home allowance has increased each year since its introduction in 2017. In the 2020-21 tax year the final increase will be up to £175,000. Combined with the standard threshold of £325,000, it means many families will not pay IHT on estates worth less than £500,000, while couples will be able to leave estates worth up to £1million before IHT kicks in.
Tax for landlords
This tax year also sees the culmination of changes to the tax regime for 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.
Capital gains tax
The annual capital gains tax allowance – the tax you pay on the profit you make when you sell an asset such as a property – will also rise from £12,000 to £12,300.
As mentioned in the budget, the coronavirus pandemic has made the Government make a significant deferral of changes to the IR35 regime.
These new regulations will now take effect from April 2021.
The information was correct at time of publishing but may now be out of date.