A range of new tax allowances and rates usually comes into effect when one tax year finishes and a new one begins.
It’s worth understanding what the major changes are so you can make the most of the reliefs available to you. Here’s a guide to some of the biggest changes coming into effect in the 2019-20 tax year, which runs from 6 April 2019 to 5 April 2020.
Remember that this is just a guide to some of the changes for the 2019-20 tax year, and that tax rules and allowances can and do change over time. Their effect on you depends on your individual circumstances, which can also change.
Pension Lifetime Allowance
The Lifetime Allowance has risen from £1.03m to £1.055m in the 2019-20 tax year. This is the maximum total amount you can hold within all your pension savings without having to pay extra tax when you withdraw money from them.
If the total value of your pension savings goes over the Lifetime Allowance, any excess will now be taxed at a rate of 25% in addition to your marginal rate of income tax if drawn as income, or 55% if you take it as a lump sum.
The tax-free personal allowance is the amount of income you can earn before you have to start paying income tax. All individuals are entitled to the same personal allowance, regardless of their date of birth.
In the 2018-19 tax year, the personal allowance was £11,850, but this has risen to £12,500 in the 2019-20 tax year. This means you can earn £650 more in the 2019-20 tax year than in the previous tax year before you start paying income tax.
However, bear in mind that the personal allowance is restricted by £1 for every £2 of an individual’s adjusted net income above £100,000.
A spouse or civil partner who isn’t liable to income tax above the basic rate may transfer £1,250 in the 2019-20 tax year to their spouse or civil partner, as long as the recipient isn’t liable to income tax above the basic rate.
Capital gains tax (CGT)
The current CGT annual exemption has increased from £11,700 in the previous tax year to £12,000 from 2019-20, in line with rises in the Consumer Prices Index (CPI) measure of inflation.
If you invest outside an ISA, any profits made above the annual CGT allowance are subject to tax at 10% or 20% depending on your tax band. Since April 2016, there is an additional 8% surcharge to be paid on residential property and carried interest (the share of profits or gains that is paid to asset managers).
CGT on residential property does not apply to your main home, only to additional properties (such as a flat you let out).
Various other allowances and rates have also changed in the 2019-20 tax year. These include the married couple’s allowance and income tax rates.