Tax Thresholds, Rates and Allowances 2020

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Tax Thresholds, Rates and Allowances 2020

Personal Allowance

The Personal Allowance for the 2020/21 tax year will remain at £12,500. This is tax-free and is applied throughout the UK.

How much tax you will need to pay each year will depend on the tax band you fall into and how much of your income is above the Personal Allowance. The basic rate threshold (20%) for England, Northern Ireland, and Wales will remain the same at £37,500 Taxpayers will fall into the higher-rate tax bracket (40%) once their income exceeds £50,000 (inclusive of the personal allowance).

Pension Allowances

The annual allowance is the maximum amount of UK tax-relieved pension savings permitted in a tax year. For those on the highest incomes, the annual allowance tapers down from £40,000, losing £1 in annual allowance for every £2 of ‘adjusted’ income above a threshold.

From 6 April 2020, there will be a £90,000 increase to each of two thresholds. Broadly, the changes should reduce the impact of the tapering.

Only those with ‘threshold’ income of £200,000 (previously £110,000) or more will need to calculate their tapered annual allowance. The annual allowance will only begin to taper down for individuals with an ‘adjusted’ income (which includes pension accrual) above £240,000 (previously £150,000).

However, for those with ‘adjusted’ income (including pension accrual) over £300,000, the annual allowance will taper down from the current abatement maximum of £10,000 to a minimum of £4,000 for those with ‘adjusted’ income exceeding £312,000.

For those on the highest incomes, the further reduction of the minimum annual allowance from £10,000 to £4,000 reflects ongoing policy to reduce limits applicable to them when it comes to saving tax efficiently for retirement. Those affected making regular pensions savings may need to adjust these from April to avoid a tax charge

The lifetime allowance is due to rise to £1.075m for the 2020/21 tax year – in-line with the rate of inflation from September 2019 and subject to rounding up.

The Lifetime Allowance is the tax-free allowance on all of your pensions, including workplace pensions which you can accrue during your lifetime. State pensions and overseas pensions are excluded from this allowance. You will not pay the tax charge on your pension savings until it exceeds

the Lifetime Allowance or you reach 75 years of age.

Payroll

The optimum director’s salary 2020/21 will be £8,788 per annum, which equates to £732 per month (£715 2019/20). This is the most tax efficient amount for the majority of directors to pay themselves. 

National Living Wage

The national living wage hourly rate for over-25s will increase by 50p to £8.72

Student loan thresholds

Loan type Threshold for payments Rate of deduction
Plan 1 £19,390 9%
Plan 2 £26,575 9%
Postgraduate £21,000 (no change) 6%

Employment Allowance

The Employment Allowance will be withdrawn for employers (and connected employers) who have an employer national insurance liability of £100,000 or more for 2019/20.  For all eligible employers the employment allowance in 2020/21 will increase from £3,000 to £4,000.  This means the first £4,000 of employers NIC will not need to be paid to HMRC

Capital Gains Tax

From the 6th April 2020, there are three significant changes to capital gains tax: reduction in the final period of exemption, lettings relief, and a 30-day window.

The proposed changes to lettings relief will potentially only be available to landlords who shared occupation of their house with a tenant. Lettings relief can reduce capital gains tax due on the sale of a property as you can claim up to £40,000 individually or up to £80,000 if a partner or spouse jointly owns the property.

The final period of exemption relief can be applied to a property up for sale, provided the property is sold within 18 months of the owners moving out. The owners will not be subject to capital gains tax on the sale of the property. The final period of exemption will be reduced to 9 months, and it will increase the capital gains tax liability for anyone selling their main residence and who has accrued a period of private residence relief.

For more information about the changes to Capital Gains Tax, please call us.

 

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