Today - April 6 - is the start of the new tax year. The financial year runs from April 6 to April 5 and the beginning is usually the day when changes come in.
In previous years this has been with things like the amount you can earn before you pay tax changing, for example, which was welcome news as it meant most people paying less tax. However, the income tax and National Insurance thresholds have been frozen until 2028, meaning there is no such boon this year.
That means the personal allowance is stuck at £12,570 for the foreseeable future. This is the amount everyone can earn before they start to pay tax - i.e. tax is only paid on amounts earned above this figure. This applies in England, Wales and Northern Ireland, Scotland has its own system.
Workers currently pay the basic 20% rate of income tax when they earn above £12,570, then the higher rate of 40% on earnings above £50,270, reports the Mirror. The 45% tax rate applies when you earn above £125,140 - this has been lowered as of April 6 from £150,000.
In terms of National Insurance, workers pay 12% in contributions when their salary reaches £12,570, then 2% on earnings over £50,270. The freezing of these tax thresholds is known as fiscal drag. It means workers end up being dragged into paying a higher rate of tax over time as their wages increase, as the thresholds remain the same.
Personal finance experts Sarah Coles and Helen Morrissey at Hargreaves Lansdown have run through the other rules kicking in from April 6.
Pension annual allowance
The pension annual allowance is how much you can save into your pension in the tax year before you get a tax charge. The allowance covers all your private pensions combined, including private and workplace pensions. As of today, the limit has been raised from £40,000 to £60,000, or 100% of your income if you earn less than £60,000.
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Money purchase annual allowance
If you start to take money from a defined contribution pension pot, this may trigger the money purchase annual allowance (MPAA). This effectively replaces the annual allowance mentioned above, reducing how much you can save while still benefiting from tax relief.
The MPAA has today been increased from £4,000 a year to £10,000 a year. You can see which situations will trigger the money purchase annual allowance on the Money Helper website. If you have a defined benefit pension scheme, the MPAA doesn’t apply.
Pension lifetime allowance
The lifetime allowance is a limit on how much you can save into pension schemes without having to pay extra tax. This had previously been frozen at £1,073,100. From today, the charge that would apply to funds over this amount will be removed.
However, the amount you can take as a tax-free lump sum is still based on 25% of the lifetime allowance and is capped at £268,275. The lifetime allowance applies across all your private and workplace pension pots.
Tapered annual allowance
If you’re a higher earner, there are further limits you can get on your pension savings. The adjusted income level required for the tapered annual allowance to kick in is rising from £240,000 to £260,000.
For every £2 your adjusted income goes over £260,000, your annual allowance for the current tax year reduces by £1. The minimum reduced annual allowance someone can have has also risen today, from £4,000 to £10,000.
The tapered annual allowance does not apply if your threshold income for the current tax year is £200,000 or less. Adjusted income includes all pension contributions, including any employer contributions, while threshold income excludes pension contributions.
Dividend tax allowance
The dividend tax allowance is falling from £2,000 to £1,000 from today – and will halve again the following April. This will hit anyone earning dividends on investments held outside of tax wrappers, as soon as they exceed the new smaller allowance. It will also affect anyone who owns their own company and pays themselves in dividends.
Capital gains tax allowance
Capital gains tax is paid on any profits you make on investments, including stock market investments and second properties. The annual allowance is being cut from £12,300 to £6,000 – before being halved to £3,000 the following April.
Scottish income tax
New income tax rates in Scotland mean the higher rate will rise from 41p to 42p and the additional rate from 46p to 47p.
