New tax year changes for 2020 – how will they affect me?

5 min Read Published: 09 Apr 2020
New Tax Year Changes for 2019
How will the new tax year changes affect me?

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.

Income Tax 2019/20 2020/21 Increase Saving
Tax-free allowance £12,500 £12,500 £0 £0
Higher-rate allowance £50,000 £50,000 £0 £0

Student Loans  

The earnings threshold for repayment of student loans has been increased. Summarised below.

Student loans 2019/20 2020/21
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

Inheritance Tax

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%.

Auto-enrolment

The minimum amount that you need to pay into your workplace's auto-enrolment has remained the same, summarised below.

Auto-enrolment 2019/20 2020/21
Employee minimum 5% 5%
Employer contribution 3% 3%
Total contribution 8% 8%

Dividend Tax Rates

No change. See our table below.

Dividends 2020/21
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.

Corporation Tax

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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