You could forget it’s a new tax year, with new allowances06 April 2020
The last few weeks of the necessary lockdown has seen significant change for most of us. I am sure this evolution will continue for some time. I would normally say at this time of year that we're looking forward to Easter, to the school holidays, and to enjoying a break, with the possibility of some sunshine. The distinction between school and home is not at all clear this year, with educational institutions closed, children at home and those who can working from home as well. However, time does not stop, although it might feel like it sometimes, and we have now moved into the new tax year 2020/2021 (starting 06 April 2020).
The Budget announcements from the Chancellor, Rishi Sunak, on 11 March 2020 concentrated mainly on the normal tax and economic topics to be considered, with a significant watching brief on the developing economic effects of Covid-19. His initial position has been subsequently and significantly updated to meet the immediate needs of the country in the face of the coronavirus outbreak. Behind the scenes, though, a raft of Budget documentation clarified the plans and allowances for the new tax year, and we have listed some of these below for easy reference.
If you have some time on your hands, it might be a great time to think about using your annually renewed tax allowances early in the tax year, so that you can enjoy the summer without any concern about missing any allowances as the tax year progresses.
For many of our clients, the focus of their financial planning might be to look at the following for this new tax year 2020/2021:
Standard Annual Allowance
Individual Savings Account (ISA)
Junior ISA (JISA) and Child Trust Fund (CTF)
£9,000 (a significant increase)
Capital Gains Tax Allowance
Annual Gift Allowance (for inheritance tax purposes)
(You can go back one year if you did not use the tax year allowance in 2019/2020)
£40,000 gross from all sources
(The limit may be higher or lower than this amount dependent on your individual circumstances – see below)
Personal Income Tax Allowance
Personal Savings Allowance
£1,000 gross for basic rate tax payers
£500 gross for higher rate tax payers
Nil for additional rate tax payers
Tapering of annual allowance for higher earners
The tapered annual allowance for pension contributions means for those on the highest incomes, the standard annual allowance of £40,000 from all sources tapers down. The threshold at which tapering starts has been raised by £90,000 in the new tax year, meaning that from the tax year 2020/2021 the 'adjusted income' will be £240,000 (£150,000 in 2019/2020) and 'threshold income' will be £200,000 (£110,000 in 2019/2020). The minimum level to which the annual allowance can taper down has reduced from £10,000 to £4,000 gross from April 2020.
This change may provide significant new scope for higher earners to fund their pensions, subject to their overall Lifetime Allowance. This is a complex area and higher earners will need to take advice.
Lifetime Allowance for pension benefits
For reference, the Lifetime Allowance for pension benefits - the maximum that someone can accrue in registered pension schemes in a tax-efficient manner over their lifetime – has increased to £1,073,100 in 2020/2021, in line with CPI.
Many will understandably have greater concerns than this year's tax opportunities; however, we hope the notes above are helpful in detailing some of the examples of allowances that can be used.
Please do contact the team at Chapters Financial in Guildford to consider your needs in this new tax year.
No individual advice is provided during the course of this blog.
Keith Churchouse FPFS
CFP Chartered FCSI
Chartered Financial Planner
Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899