The UK’s new tax year: the changes you need to know about

Everything you need to know about the 2019/20 tax year

Rosie Murray-West – Virgin Money Living Mentor

by Rosie Murray-West | Independent Money Mentor

Award-winning personal finance and news journalist

Most of us hold our New Year’s Eve parties on 31 December, but for accountants it is 5 April that gets the champagne corks popping. That’s because 6 April is the beginning of a whole new tax year, with changes to many of our tax thresholds, allowances and general expenses.

Tax year changes might not sound very exciting, but they can have a dramatic effect on your personal finances, for better or for worse. Here’s a rundown of what’s changing (and what’s not) this new tax year.

What's changing...

1. Personal Allowance

Everyone has a Personal Allowance – the amount of money you can earn before you need to pay Income Tax. From 6 April 2019, it’s risen from £11,850 to £12,500 if you live in England, Wales or Northern Ireland – meaning that if you’re a basic rate taxpayer you’ll now get an extra £130 in your pocket over the year. (If you live in Scotland, you’ll pay tax under a slightly different system – this article from Which? explains more). Visit the Government’s page on the Personal Allowance for more information.

2. National Insurance threshold

The threshold for paying National Insurance contributions – which enable us to qualify for the State Pension and certain other benefits – also increased on 6 April, and so you should have more money in your pocket.

If you earn less than £8,632 (up from £8,424 in 2018/19) you'll pay no National Insurance contributions. If you earn more you'll now pay 12 percent of your earnings between £8,632 and £50,000 and 2 percent on any earnings above £50,000 – up from £46,350 in 2018/19.

3. National Living Wage

The National Living Wage has risen to £8.21 for those 25 and over – up from £7.83 before April. Together with increases in the National Minimum Wage for those under 25, it’s estimated 2.4 million workers will benefit in total.

4. State Pension

The new single-tier State Pension is also rising in the new tax year by £4.25 a week, or £3.25 a week if you get the basic State Pension. The new State Pension is now worth £168.60 per week – or £8,767.20 per year – while the basic State Pension is £129.20 a week, or £6,718.40 a year.

5. State Pension Credit

Pension Credit is a means-tested benefit awarded to retired workers based on their earnings. It’s made up of two parts (guarantee credit and savings credit) and it’s increased by 2.4%.

Guarantee credit tops up your weekly income so it reaches a minimum sum set by the government. This has risen from £163 to £167.25 per week for a single person and from £248.80 to £255.25 for a couple. 

Savings credit is an extra payment from the government to reward you for saving towards your retirement. The maximum you can get as a single person has risen from £13.40 to £13.72 a week, while the maximum for a couple is now £15.35 a week, up from £14.99.

6. Personal Pension contributions

If you’re part of your employer’s pension scheme the minimum pension contribution you’ll have to make increased from 3 percent to 5 percent on 6 April. While this will mean you will have less disposable income in your bank account if you’ve previously been contributing under 5 percent, in the long term this is a positive thing as the contributions will go towards your future pension.

7. Personal Pensions Lifetime Allowance

The Pensions Lifetime Allowance, which is the amount of pension you are allowed to amass over a lifetime, has risen from £1.03m to £1.055m. 

8. Junior ISA allowance

If you’re saving for children – or are considering doing so – you’ll want to know that the allowance for a Junior ISA has increased slightly, from £4,260 to £4,368. You can find out more about Junior ISAs here.

9. FSCS investments protection

On 1 April, the Financial Services Compensation Scheme (FSCS) protection limit for claims related to investments increased to £85,000 (from £50,000 in 2018/19).

10. Council Tax

97 percent of councils were expected to increase Council Tax rates in April this year. Three-quarters planned to increase Council Tax by more than 2.5 percent, which would mean that the average Band D Council Tax bill, currently £1,671 a year, would increase by £42.

11. Energy price cap

This cap, introduced in January 2019 by energy regulator Ofgem, limits the amount households have to pay on the dual fuel bills. Due to rising costs, the cap increased to £1,254 on 1 April – an increase of £117. Be sure to check how you could save money on your utility bills, and remember that the cap is a maximum and so there may be some cheaper deals out there.

12. Water

Water and sewerage bills in England and Wales rose by 2 percent on 1 April, adding £8 to an average’s household’s annual bill. And while you can’t change water supplier as you can for gas and electricity, there are still ways to cut your bill.

You may be able to save money by switching to a meter, if you don’t already have one: use a water usage calculator such as the Consumer Council for Water’s to find out. The Money Advice Service reports that switching could save you around £100 per year, and The Energy Saving Trust’s website gives plenty of tips about easy ways to save water (and money). Our article, How to save money on your utility bills, also gives more suggestions. 

13. TV licence

The cost of an annual colour TV licence rose to £154.50 from £150.50 on 1 April (and the licence for black and white TVs, which some people still have, to £52 from £50.50). Over 75s can get a free TV licence for their main residence. 

14. Car tax

Vehicle Excise Duty rose on 1 April. The increase depends on your car’s engine size or fuel type as well as CO2 emissions – calculate your car’s vehicle tax rate on the Vehicle Certificate Agency website

15. NHS prescription charges

On 1 April, the cost of NHS prescriptions in England rose by 20p (2.5 percent) to £9.  Those living in Scotland, Wales and Northern Ireland get free prescriptions.

The cost of the prescription prepayment certificates (PPC), meanwhile, has been frozen at £29.10 for a 3-month PPC and £104 for an annual PPC 

16. Dental care

The cost of dental care in England and Wales rose on 1 April, with the lowest-cost ‘band one’ treatment now costing £22.70, ‘band two’ treatment, for treatments such as extractions, now £62.10 ad ‘band three’ for procedures such as crowns and bridges, £269.30. 

If you are in full time education, pregnant or receiving certain benefits you may be eligible for free NHS dental treatment.

...and what's staying the same

1. ISA allowance

The annual ISA allowance – which is the amount of money you can shelter from the tax man in cash, stocks and shares or innovative finance ISAs – remains at £20,000 a year, and if you’re able to you should try and make the most of your ISA allowance so you can max out on your tax free savings allowance.

The amount you can put into your Lifetime ISA – a savings vehicle for a first home or for retirement – remains at £4,000 a year, and any money you pay into a Lifetime ISA counts towards your overall £20,000 yearly ISA limit. 

2. Personal Savings Allowance 

Savvy savers should be aware of the Personal Savings Allowance. Introduced in 2016, it still lets basic rate taxpayers earn up to £1,000 of interest on savings without paying tax on it. For those on higher rate the allowance is set at £500, and additional rate payers aren’t eligible.

3. Dividend threshold

Dividends are payable from many investments, and self-employed people working through their own limited companies also often pay themselves through dividends. And so it’s important to know that the dividend threshold allowance remains at £2,000 – basic rate taxpayers will continue to pay 7.5 percent tax on their dividends, while higher rate taxpayers will continue to pay 32.5 percent and additional rate taxpayers 38.1 percent.

4. Pension tax relief

The amount you can pay into your pension and receive tax relief from the government remains at £40,000 a year.

5. Child Benefit

The Government has not announced any changes to the income threshold at which you may need to pay a tax charge when you claim Child Benefit – it’s remaining at £50,000.

6. NHS prescription charges 

At the time of writing, the government is expected to maintain the current pricing for NHS prescription charges. So for the new tax year, a single charge is expected to still cost you £8.80 for each medicine or appliance dispensed. The cost of the prescription prepayment certificates (PPC) should also been frozen at £29.10 for a 3-month PPC and £104 for an annual PPC.

And there you have it. Come rain or shine in April, one thing’s a given: you’ll be affected by the new tax year changes one way or another. So be sure to familiarise yourself with all of the above so you know what changes to expect this new tax year – good or bad.

Before making financial decisions always do research, or talk to a financial adviser. Views are those of our mentors and customers and do not constitute financial advice.