Happy new tax year! As the new tax year begins, here are the top five tax changes we think you should know about:
- Capital gains tax allowance has halved
The allowance you have before you pay capital gains tax (CGT), has halved today from £6,000 to £3,000. Let’s not forget it more than halved this time last year too, from £12,300 to £6,000. So in just over a year the CGT allowance has reduced by over 75%.
It is worth remembering that CGT is charged at a much lower rate than income tax. 20% for higher rate taxpayers and 10% for basic rate taxpayers for most gains other than second property disposals which are taxed at 24% and 18% respectively.
- Dividend allowance has halved
The dividend allowance has halved from £1,000 to £500. Remembering this halved last year too from £2,000 to £1,000 so we are seeing another allowance reduce by 75% in just over 1 year.
This means that more investors will pay CGT on gains and income tax on dividends, with some people having to submit a tax return for the first time.
ISAs are one way to shield investments from tax on gains and dividends, professional advice can ensure you are making full use of your tax allowances.
- The Lifetime Allowance has been abolished
It was announced last year that the Lifetime Allowance (LTA) would be abolished from this year and for the past year this has been charged at 0%.
This is potentially good news for those who hold certain Lifetime Allowance Protections that didn’t previously allow them to contribute to pensions. This rule has now been changed which provides a planning opportunity for many people who have been locked out of pension saving for years.
This sounds like a positive step in simplifying the pension rules, right? Not quite! To remove the LTA they have instead introduced three new allowances to limit the amount of that can be taken tax free from your pension during your lifetime and upon death.
Pension legislation remains a complicated area, so professional advice is strongly recommended.
- Simplification of Individual Savings Accounts (ISAs)
Until now you could only contribute to 1 cash ISA and 1 stocks and shares ISA in the same tax year. However, from today you can invest in multiple ISAs of the same type, in the same tax year, provided you remain within the £20,000 limit.
- National Insurance cut for employed and self-employed workers
A further 2% reduction in National Insurance contributions (NIC) comes into force with employees paying 8% Class 1 NIC and the self-employed paying 6% Class 4 NIC with class 2 NIC for the self-employed being abolished.
Whether you decide to save or spend it, you will see slightly more in your pay packet this month!
