The new tax year has brought in a host of tax reforms. Here is the Moneywise guide to the changes impacting your personal finances this tax year.
The most popular tax change is likely to be higher allowances for ISAs. The annual limit on saving through ISAs is now £7,200, of which up to £3,600 can be saved as cash. If you choose to invest the maximum amount in cash, then you can only invest £3,600 in stocks and shares.
As well as changes to allowances, ISAs are no longer distinguished by mini and maxi tags – instead, mini cash ISAs, TOISAs and the cash component of a maxi ISA have automatically become cash ISAs. Mini stocks and shares ISAs and the stocks and shares component of a maxi ISA have automatically become stocks and shares ISAs.
Personal Equity Plans (PEPs) have now automatically become stocks and shares ISAs.
Find the best cash ISA products on the market in the Moneywise ISA round-up.
Another significant tax change is the simiplication of tax bands. As part of this, the 10% starter rate of income tax has been scrapped while the basic rate of income tax has dropped from 22% to 20%. Higher rate taxpayers will continue to pay 40%, and this will kick in on income above £41,435.
Personal allowances have also increased for everyone (see table below) with those aged over 75 seeing the biggest increase.
The upper earnings limit for the 11% rate of National Insurance has increased from £670 a week to £770 (£40,040 a year). People who earn more than this will be taxed at 1%.
Taxpayers who have been classified as non-domiciled for seven years will now have to pay £30,000 a year to keep this status and will be taxed on their worldwide earnings, rather than just those in the UK.
The changes to income tax will impact on government top-ups on pension contributions.
Capital Gains Tax
Previously, the top rate of capital gains tax was 40% and investors selling shares or other assets could claim indexation relief (which reduces their gain by the annual rate of inflation for the years between 1982 and 1998) or taper relief depending on how long they had held the investment.
However, an 18% flat-rate of capital gains tax has now kicked in, and taper relief and indexation allowances have been scrapped. The exemption for capital gains tax has also risen to £9,600.
As a concession to entrepreneurs, owners of small business as well as employees and company directors who own at least 5% of shares in the company will only pay 10% capital gains tax on any profits under £1 million.
The nil-rate band for inheritance tax has now risen to £312,000 a year. Married couples and those in civil partnerships can also combine their allowances, meaning they will not have to pay inheritance tax on the first £624,000 of their estate.
Benefits and tax credits
Tax credits, child benefits and state pensions have all increased in the new tax year.
The basic working tax credit has risen by £70 a year, while the child element of the child tax credit has gone up by £240.
Child benefits for the eldest child have gone up by 70p a week, with benefits for other children rising by 45p.
Finally, category A or B state pension has gone up by £3.40 a week.
For all changes to tax credits, child benefits and state pensions visit the HM Treasury website.
| Income tax (£ per year) ||2007/08||Change||2008/09|
|Personal allowance (age under 65)||£5,225||+ £210||£5,435|
|Personal allowance (age 65-74)||£7,500||+ £1,480||£9,030|
|Personal allowance (age 75 and over) ||£7,690||+ £1,490||£9,180|
10% married couple's allowance
(aged less than 75 and born before 06/04/1935
(aged 75 and over)