As of the 6th April 2020 we move into the new 2020/21 tax year. Every year we see changes to thresholds and rates and this tax year is no different. In this article we summarise the changes and explain how they may affect you.
Income Tax Rates 2020/2021
The tax-free personal allowance will remain at £12,500 and the higher-rate allowance remains at £50,000. We have summarised the figures in the table below.
The earnings threshold for repayment of student loans has been increased. Summarised below.
|Plan 1 loans||£18,935||£19,390|
|Plan 2 loans||£25,725||£26,575|
National living wage
The national living wage has increased by 50p. Summarised below.
|National living wage||2019/20||2020/21||Increase|
|Hourly minimum for over 25's||£8.22||£8.72||50p|
The tax-free threshold remains at £325,000, but the additional rate that applies to property passed directly to a descendant, increases from £150,000 to £175,000.
|Inheritance Tax||2019/20||2020/21||Increase||Total (including tax-free threshold)|
|Threshold on property passed directly to descendants||£150,000||£175,000||£25,000||£500,000|
Don't forget: Passing on assets to a spouse is tax-free and that spouse can then make use of both allowances, meaning a married couple can increase their allowance to £1,000,000.
Lifetime Allowance (Personal Pension)
The lifetime allowance on pension contributions has increased from £1,055,000 to £1,073,100, an increase of £18,100. This is the total limit on the amount a retiree can amass in a pension without having to pay additional tax of up to 55%.
The minimum amount that you need to pay into your workplace's auto-enrolment has remained the same, summarised below.
Dividend Tax Rates
No change. See our table below.
|The tax-free dividend allowance||£2,000|
|Basic-rate taxpayers % on dividends||7.50%|
|Higher-rate taxpayers % on dividends||32.50%|
|Additional-rate taxpayers % on dividends.||38.10%|
Capital Gains Tax 2020/2021
The annual exemption from capital gains has increased from £12,000 to £12,300. The percentages remain the same and can be found in our table below.
|Capital Gains Tax (CGT)||2020|
|Annual exemption from capital gains||£12,300|
|As a basic rate taxpayer||18%|
|Gains from other chargeable assets||10%|
|As a higher rate taxpayer||28%|
|Gains from other chargeable assets||20%|
If your assets are jointly owned with another person, you can utilise both your allowances. This can effectively double the amount you can make before any CGT is due. Those that are married or in a civil partnership can transfer assets to each other without any CGT being charged.
If you don't make full use of your CGT allowance in a given tax year, you cannot carry it forward to the next.
From April 2020, anyone making a taxable gain from selling a UK residential property must submit a residential property capital gains return within 30-days and pay any capital gains tax owed.
No change. Remains at 19%.
VAT Registration Threshold
No change. Remains at £85,000
Buy to let
In 2015, former chancellor George Osborne introduced a tax change that removed landlords' ability to deduct the cost of their mortgage interest from their rental income when calculating profits. The change was phased in from 2017, meaning that for this tax year, the amount that can be deducted is only 25%. This will reduce by 25% each year and so by 2021/22, landlords will no longer be able to deduct the cost of mortgage interest when working out their profits from buy to let properties.
|Buy to let||2018/19||2019/20||2020/21||2021/22|
|Mortgage interest deducted against rental income||75%||50%||25%||0%|
ISA Limits 2020/2021
The junior ISA limit has been increased from £4,368 to £9,000 and all other ISA limits remain the same. The limits for all ISA types are summarised below. If you are interested in finding out more about ISAs, then check out our article best and cheapest investment ISAs for beginners.
|Types of ISA||2019/20||2020/21||Difference|
|Cash ISA||£20,000||£20,000||No change|
|Stocks and Shares ISA||£20,000||£20,000||No change|
|Innovative finance ISA||£20,000||£20,000||No change|
|Help to Buy ISA||Initial £1,200 plus £200 per month||Phased out - replaced by Lifetime ISA||N/A|
|Lifetime ISA||£4,000||£4,000||No change|
|Junior ISA||£4,368||£9,000||Increase of £4,632|
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