The new tax year

The 2010/11 tax year has now started. I've fully updated the site to relect this, but a quick recap on the major changes the new tax year brings..

Income Tax Personal Allowances – frozen, but reduce over £100,000

Personal allowances remain at 2009/10 levels (£6,475 for those under 65) rather than increasing with inflation (because inflation was negative over the period used). Income tax bands remain unchanged too.

However, your personal allowance will reduce by £1 for every £2 of income you earn above £100,000. So 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 applies to income over £150,000 – estimated to affect the top 1% of earners. Such earners 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 - £2.40 weekly increase, qualifying years reduce to 30

The basic state pension for a single person has risen by £2.40 to £97.65 per week and by £3.85 to £157.25 for married couples. However, additional state pension elements such as SERPS/S2P are unchanged.

If you’re a woman then the age at which you’re entitled to a state pension is gradually increasing from 60 to 65 until 6 April 2020. You can use the DirectGov State Pension Calculator to find out your exact retirement date.

On a brighter note, you now only need 30 qualifying years of national insurance contributions to get a full basic state pension (it was 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 is now 55, having risen from age 50.

ISA Allowances – £10,200 for everyone

The annual Individual Savings Account (ISA) allowance is now £10,200 for everyone eligible to contribute into an ISA. Up to half of this 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 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 has also changed, being a little cheaper for lower polluters and more expensive for higher polluters.

Pension allowances

The annual and lifetime pension allowances have increased to £255,000 and £1.8 million respectively, but will now remain at these levels for five years.

Pension contributions – reminder if you earn above £130,000

No change to the rules, but a reminder if your annual taxable income has exceeded £130,000 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 is frozen at £325,000 until 2014/15 and the annual capital gains tax allowance remans £10,100.

National insurance band and rates remain the same 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 have generally increased.

Read this article at http://www.candidmoney.com/articles/article88.aspx