The new tax year, starting 6 April, brings a mix of some fairly major changes along with no changes at all where you’d normally expect them. Will they affect you?.
To help you find out whether and how you might be affected, I’ve taken a look at the main areas to see what you can expect.
Income Tax Personal Allowances – frozen, but will reduce over £100,000
Personal allowances will be frozen at current levels (£6,475 for those under 65) rather than benefitting from the usual inflation-linked increase, as will income tax bands.
However, a new rule means your personal allowance will reduce by £1 for every £2 of income you earn above £100,000. So (assuming you’re under 65) if your income exceeds £112,950 you’ll lose your entire personal allowance, effectively increasing your annual tax bill by £2,590 if you’re a 40% taxpayer or £3,237 if you pay 50%.
50% Income Tax
A new 50% tax rate will apply to income over £150,000 – estimated to affect the top 1% of earners. Such earners will also have to pay 42.5% tax on dividend income, equivalent to an extra 36.11% on dividends they receive (rather than the extra 25% paid by 40% taxpayers).
The State Pension - £2.38 weekly increase, qualifying years reduce to 30
The basic state pension for a single person is due to rise by £2.38 to £97.63 per week and by £3.80 to £156.10 for married couples. However, additional state pension elements such as SERPS/S2P are due to be frozen.
If you’re a woman then the age at which you’re entitled to a state pension is gradually increasing from 60 to 65 between 6 April 2010 and 6 April 2020. You can use the DirectGov State Pension Calculator to find out your exact retirement date.
On a brighter note, you’ll only need 30 qualifying years of national insurance contributions to get a full basic state pension – it’s currently 44 years for men and 39 for women.
Retirement Age Increase – from age 50 to 55
The minimum age at which you can take a pension will rise from 50 to 55. This means if you’re aged between 50 and 54 and want to take your pension before you reach age 55 you’ll need to do so before 6 April 2010. As this is rarely an instant process you’ll need to get a move on.
ISA Allowances – increasing to £10,200 for everyone
The annual Individual Savings Account (ISA) allowance will increase from £7,200 to £10,200 for everyone eligible to contribute into an ISA – currently the higher allowance is only available to those aged 50 and over. Up to half of the £10,200 ISA allowance (i.e. £5,100) may be held in a cash ISA with any unused balance (up to £10,200) available for a stocks & shares ISA.
Car Tax – free/more expensive tax discs for first year on new cars
If you buy a new car from 6 April 2010 you’ll have to pay a different rate of tax for your first year’s tax disc. Buy a low emission car (less than 131 CO2 g/km) and it’s free, but buy a big polluter (more than 255 CO2 g/km) and it’ll cost you £955 – full details on the Direct Gov website.
The cost of standard tax discs is also changing, becoming a little cheaper for lower polluters and more expensive for higher polluters.
Pension contributions – reminder if you earn above £130,000
No change to the rules, but a reminder if your annual taxable income has exceeded £150,000 (£130,000 from 9 December 2009) since April 2007:
If you increase existing regular (i.e. monthly/quarterly) pension contributions and annual contributions exceed £20,000 then you'll have to pay tax on the excess to remove the benefit of higher rate tax relief.
If you make ad-hoc pension contributions, then your higher rate tax relief is limited to the lower of your average annual contribution over the three years to April 2009 and £30,000. Any excess is again taxed to reduce the tax relief to basic rate.
Anything else?
The inheritance tax nil rate band will be frozen at £325,000, as will the annual capital gains tax allowance at £10,100.
National insurance band and rates will be frozen with the exception of a £2 increase to the lower limit (currently £95) at which the Government credits NI contributions to low earners as if they had been paid.
Benefits such as Working Tax Credits, Child Tax Credits and Child Benefit are generally increasing.
Of course, there may be further changes in the 2010 Budget, expected sometime this month – I’ll update the site as soon as we know what they are.
Read this article at http://www.candidmoney.com/articles/article73.aspx
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