Each new tax year brings new sets of rules and allowances to keep in mind when planning your finances. The 2020/21 tax year is no different. Here’s an update of key points to keep in mind this year.
This does not constitute advice and advice should be sought in all instances before acting on it. The Financial Conduct Authority does not regulate tax advice.
Income tax allowances
Personal allowance remains at £12,500 this year but the threshold for National Insurance contributions has risen above inflation. This is one step in PM Boris Johnson’s plan to align the personal allowance with the point at which taxpayers start to pay National Insurance. The main threshold increases to £9,500 so many taxpayers will be £104 better off annually.
Pensions
The new tax year sees a slight increase in the Lifetime allowance, just to keep it consistent with inflation. In 2020/21 the new limit is £1.075m, up from £1.055m last year. It’s important to pay attention to this allowance as you could be charged as much as 55% for exceeding it.
Perhaps most importantly, changes were made to the tapered annual allowance which caused major problems with high-earning doctors and dentists, creating a strain on the NHS as many cut back hours to avoid massive tax bills.
The Threshold Income increased to £200,000 and the Adjusted Income limit to £240,000 – an increase in £90,000 for each.
Now, if your Threshold Income is greater than £200,000 and Adjusted Income is more than £240,000, the annual allowance is reduced by £1 for every £2 over the limit. If you earn £312,000 or more your new minimum annual allowance could be reduced to as little as £4,000.
If Threshold Income is less than £200,000 no tapering will occur.
Read more > What the New Tapering Means for NHS Pension Holders (in Practical Terms)
Inheritance tax
Thanks to residence nil rate band, for the first time in over 30 years, married couples and civil partners will be able to pass down £1m free from tax. The nil rate band remains at £325,000.
Landlord tax changes
Moving forward, landlords can only claim back mortgage interest relief and associated financing costs at 20%. This is the first year landlords are no longer permitted to subtract these expenses from their rental income, effectively reducing their overall taxable income.
Capital gains taxes (DGT) will change as well. From this tax year, you only be able to claim lettings relief if you are a live-in landlord. The “final period of exemption” relief is also being cut short from 18 months to 9 months. Lastly, if you’ve made a profit from the sale of a second home you have a mere 30 days to declare to HMRC as opposed to previously being able to wait until your annual tax return.
Self-employed taxes
The highly disputed changes to the “IR35” rules which pertained to contractors will be delayed at least one year. It was discussed shifting the responsibility of declaring employee’s tax status to employers, but experts predicted that would have led to even more NHS staffing issues.
Junior ISAs
The JISA limit for the new year skyrocketed to £9,000, up from £4,368.
Our investment partners Fusion Wealth now offer a JISA with the same benefits as a standard ISA.
The start of the new tax year is the ideal time to meet with your financial adviser to effectively take advantage of the increased allowances and changing tax rules. Contact us now to schedule a time that’s convenient for you.
Want help with your financial planning?
Investments | Financial Planning | Retirement | Save Tax | Protection |
Dental & Medical Financial Services have been helping doctors and dentists to build and protect their wealth, whilst saving tax for over 25 years.