New financial year begins Increase in personal tax allowances brings cheer
06 April 2009
The 2009-10 tax year begins today (6 April) and brings good news for nearly everyone.
Unusually, the new rates and allowances pre-date this year's Budget, which isn't until 22 April. Some measures won't be announced until then, but significant changes come into effect today.
Personal allowance rises by 7%
The tax-free personal allowance for those aged under 65 rises from £6,035 to £6,475. This is a 7% increase in the slice of income you can keep before paying tax. For someone earning £25,000 it means they will pay £88 less tax in the new year. Changes in the National Insurance threshold mean they will save a further £31 a year, leaving them £119 better off. Age-related allowances for those aged over 65 go up today too, by 5%.
40% tax band threshold increased by £2,600
The income level at which you fall into the 40% tax band has been increased from £34,800 (after allowances) to £37,400. This means that someone earning £43,000 a year will pay £521 less tax, benefiting from the rise in personal allowance and the higher threshold. They will also experience a £31 cut in their National Insurance bill, taking their total saving to £552.
National Insurance threshold changes
There are changes in National Insurance thresholds, to the income level above which it begins to become payable (rises from £5,435 to £5,715) and the income level above which the rate it is charged at falls from 11% to 1%. This rises from £40,040 to £43,888.
This increase means that better-off taxpayers will end up saving on tax, but paying more in National Insurance. Someone earning £90,000 a year will save £696 in tax but pay £383 more in National Insurance. They will be £313 better off.
State pension rises
The basic state pension rises by 5%, from £90.70 a week to £95.25. It is pegged to the rate of inflation, as measured by the retail prices index (RPI). Although this has recently fallen to zero, state pension rises reflect the rate as it stood in September 2008. Pension Credit has also risen by around 5%, from £124 per week to £130 per week for individuals and from £189 to £198 for couples.
Inheritance tax (IHT) threshold increased
The threshold above which inheritance tax is due on estates rises from £312,000 to £325,000. Tax is only payable on the residue of the estate above this level. Following last year's Budget changes, many couples can now effectively double their IHT-free allowance to £650,000
Full Budget details to follow on April 23rd
Which? produces a number of online tax advice guides. These will all be fully updated following the Budget. For more details see http://www.which.co.uk/tax
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