While the new tax year isn’t usually rung in with champagne and fireworks, it’s a major milestone for your finances. A raft of changes will take effect today, from how much is in your pay packet to what your heirs can inherit.
As the start of a new tax year, the 6 April is the date most previously announced tax reforms take effect. April is also when prices tend to go up, and when new laws often come into force.
Read on to find out everything you need to know about the 2019-20 year and how it’s likely to impact on your finances.
You’ll pay less income tax
Employees may find a pleasant surprise in their next pay cheque, as their tax bill is set to decrease.
The personal allowance – which is the amount you can earn tax-free – is due to rise from £11,850 to £12,500 in 2019-20. This means you’ll pay tax on less of your income.
The higher-rate threshold is also rising, up to £50,000, so that you can earn more before the 40% tax rate kicks in.
Keep in mind that Scotland has its own income tax bands and rates, so check what you’ll pay as a Scottish resident.
- Find out more: how you could earn up to £43,250 tax-free
National insurance is going down (for some)
The thresholds at which you pay National Insurance are also rising. But while this is good news for low earners, higher-earners may feel a sting.
Below earnings of £8,632, you won’t pay any National Insurance at all. Last year, this threshold was £8,424, meaning most people will look forward to a slightly smaller bill.
Between £8,632 and £50,000, you pay National Insurance at 12%. Above £50,000, you pay 2%.
This upper threshold is substantially higher than last year, when it was £46,350. People earning more than this amount might see their bill creep up, as more of their income is taxed at 12% rather than 2%.
You can use our income tax calculator to work out exactly how much tax and National Insurance you’ll pay in 2019-20.
Your pension pot will grow
On 6 April, the amount that you and your employer pay into your workplace pension through auto-enrolment is set to rise from 3% to 5%. Your employer’s contribution is also going up, from 2% to 3%.
In the short-term, this means you may see your monthly earnings fall slightly, with Hargreaves Lansdown estimating the average earner will lose £30 a month.
Over the long-term, however, you’ll see huge returns from higher contributions, that will help support you in retirement. We explain how your earnings grow exponentially in our guide to auto-enrolment.
- Find out more: four ways your pension will change in the 2019-20 tax year
State pension is rising
Pensioners are in for a pay rise from today, with the state pension going by £221 a year.
But that’s not the only change affecting your state pension – find out more about how state pension is changing in 2019-20.
Isa allowances are refreshed
Savers can put away up to £20,000 a year in a tax-free Isa wrapper. This refreshes on 6 April, so you’ll start today with the full amount.
You can compare hundreds of Isa accounts on Which? Money Compare to find the best home for your money this year.
Capital gains tax may be cheaper
When you sell assets worth more than £6,000, you may face a capital gains tax bill.
But this year, you’ll be able to keep more of your profits. The tax-free allowance is rising from £11,700 to £12,000, and married couples can pool their allowances, potentially giving them up to £24,000 tax-free.
Remember that you don’t pay CGT when you sell your car or your main home.
- Find out more: capital gains tax allowance and rates
Inheritance tax bills may be cut
Passing on your home to the next generation will be easier in 2019-20, as your heirs could face a smaller inheritance tax bill.
When you leave your home to a direct descendant, such as a child or grandchild, you benefit from an additional tax-free allowance. This will rise in 2019-20 to £150,000, up from £125,000 last year.
This is layered on top of the standard tax-free allowance of £325,000, so you could potentially leave up to £475,000 behind without paying tax.
Married couples and civil partners can inherit from one another tax-free and apply one another’s allowances to their estates. So, a couple theoretically could pass on up to £950,000 tax-free.
- Find out more: inheritance tax thresholds and rates
Your bills are going up
While not strictly tax-related, April tends to be the time when household bills go up.
From your Sky TV or mobile phone package to postage stamps, a number of things are likely to get more expensive. We round up some of the major changes in our story on price hikes.
Your council tax bill is also likely to increase in April, with a third of councils raising rates by more than 5%. Find out how much your bill will be with our council tax calculator.
Changes for the self-employed
If you’re self-employed, you’re likely to see the amount of National Insurance you pay climb slightly from today, depending on how much you earn.
You’ll be able to earn £6,365 without paying any NI, up from £6,205 last year. And you won’t need to start paying Class 4 rates until you earn £8,632, up from £8,424.
However, between £6,365 and £8,632, you’ll pay a higher amount – £3 a week instead of £2.95.
And like employed people, you may be caught out by the higher limit for the 9% rate, which has risen from £46,350 to £50,000.
If your business needs to pay VAT (if your turnover tops £85,000) you’ll also have to start reporting your tax more regularly. This initiative, known as Making Tax Digital, will apply to more than 1.4m businesses UK-wide, so check whether you need to register.
Editor’s note: a previous version of this article misstated the state pension increase.