Its important to keep up to date with what is going on from a tax perspective so you can manage your personal finances. Here’s the latest view on what the 2020/2021 tax year is bringing.
Personal allowance – HMRC confirmed no change to the Personal Allowance (£12,500) or to the tax bands – higher rate taxpayers will continue to pay 40% on income above £37,500 and the ‘additional rate’ remains the same at 45% for income over £150,000.
There are still additional allowances if you are eligible including allowances for the first £1,000 that is earned from self-employment and from property rental however both these can impact your tax rate so it is advised to check with your personal tax advisor to advise on the best outcome for you
Pension tax relief thresholds – some good news when Government announced that the annual pension allowance threshold increased from £200,000. As a result, thousands of people who were previously earning more than £110,000 will no longer be impacted by the tapered annual allowance (£1 for every £2 of ‘adjusted income’ that exceeds £150,000). It is believed that this was done to support challenges faced by NHS Doctors which will now have a positive impact for those in other professions. Other good news included the lifetime allowance increasing to £1,075m in line with inflation.
Inheritance tax changes – The inheritance tax free threshold has remained the same at £325,000 for many years. Increasing property values have led to increasing number of taxpayers having to pay significant tax bills. As a result, the Government introduced an additional threshold for main residences if it is left to a child or grandchild. Some good news in that it is increasing from £125,000 to £175,000 for the 2020/2021 tax year.
Capital Gains tax – there has been a nominal increase in the Capital Gains tax allowance i.e. the tax that you pay when you sell chargeable assets such as a property that isn’t your main residence. It has increased from £12,000 to £12,300 for tax year 2020/2021.
All profits that exceed this will still be taxed – 28% on property and % for all other profits if you are a higher or additional tax rate payer. This tax also needs to be paid within 30 days if you sell a UK residential property.
Stamp Duty Land tax – in July it was announced that there would be a tax ‘holiday’ for the first £500,000 on a residential property until 31 March 2021. This could save homebuyers up to £15,000 and being used to stimulate the housing market. Tax bandings for Stamp Duty are as follows:
Property sale value Main residence Additional properties <£500,000 0% 3% £500,000 to £925,000 5% 8% £925,000 to £1.5m 10% 13% £1.5m + 12% 15%
VAT reversal change – legislation that was delayed from 2019 for those who work in the construction industry will now go live in October 2020. Those who provide services (within construction) to a VAT registered customer will no longer have to account for VAT. This will now need to be accounted for by the customer themselves.