New tax year changes for 2021 – how will they affect me?

5 min Read Published: 06 Apr 2021
New Tax Year Changes for 2019
How will the new tax year changes affect me?

As of the 6th April 2021 we move into the new 2021/22 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 2021/2022

The tax-free personal allowance increases to £12,570 and the higher-rate allowance increases to £50,271. It was announced by the Chancellor of the Exchequer in the Spring Budget that the personal allowance rates for 2021/22 will remain frozen until 2026. We have summarised the figures in the table below.

Income Tax 2020/21 2021/22 Increase Saving
Tax-free allowance £12,500 £12,570 £70 £14
Higher-rate allowance £50,000 £50,271 £271 £54

Student Loans  

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

Student loans 2020/21 2021/22
Plan 1 loans £19,390 £19,895
Plan 2 loans £26,575 £27,295

National minimum and National living wage

The national minimum and National living wage has increased by 19p. Additionally, the age for receiving the minimum wage reduces from 25 years to 23 years. The increase is summarised below.

National living wage 2020/21 2021/22 Increase
Hourly minimum for over 25's £8.72 £8.91 19p

Inheritance Tax

The tax-free threshold remains at £325,000 and is frozen until 2026. The additional rate that applies to property passed directly to a descendant remains at £175,000, meaning the total that can be passed on to direct descendants (including property) remains at £500,000.

Inheritance Tax 2020/21 2021/20 Increase Total (including tax-free threshold)
Threshold on property passed directly to descendants £175,000 £175,000 £0 £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 total IHT free allowance to £1,000,000.

Lifetime Allowance (Personal Pension)

The lifetime allowance on pensions remains at £1,073,100. 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% upon accessing it.

Auto-enrolment

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

Auto-enrolment 2020/21 2021/22
Employee minimum 5% 5%
Employer contribution 3% 3%
Total contribution 8% 8%

Dividend Tax Rates

No change. See our table below.

Dividends 2021/22
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 remains at £12,300 and will remain frozen until 2025/26. The percentages remain the same and can be found in our table below.

Capital Gains Tax (CGT) 2021/22
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%.

The chancellor announced plans to increase the headline rate of corporation tax to 25%, starting 2023/24. Smaller companies with profits of less than £50,000 will be given a 'Small profits rate' of 19%, with a tapered increase up to 25% for those companies with profits larger than £50,000.

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 now 0%, where it is set to stay.

Buy to let 2018/19 2019/20 2020/21 2021/22
Mortgage interest deducted against rental income 75% 50% 25% 0%

ISA Limits 2021/2022

All ISA limits for 2021/22 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 on the best and cheapest investment ISAs for beginners.

Types of ISA 2020/21 2021/22 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 N/A - Phased out N/A - Phased out N/A
Lifetime ISA £4,000 £4,000 No change
Junior ISA £9,000 £9,000 No change

 

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