With the self-assessment tax return deadline behind us, a new tax year rapidly approaching, and a surprise resignation from Sajid Javid, it’s been difficult to keep up with what’s actually meant to be going on with our taxes and our money come April 2020. Although exact details and figures are at risk of changing, especially as the new Chancellor of the Exchequer, Rishi Sunak, may have plans of his own, here are the 10 big financial changes we’re expecting and what we think you should keep your eyes out for:
1. Minimum wage will go up
Minimum wage currently stands at £8.21 per hour for those aged 25 and over but it’s expected to go up to £8.67. This will be good news for many and even better news for the government as it’ll start pushing more people over the personal income tax threshold. The threshold is expected to stay at £12,500 for 2020/21 and means that once you start earning over this amount, you’ll have to start paying income tax.
2. National Insurance payments are going down
Boris Johnson proposed a cut to national insurance payments by raising the threshold to £9,500 from £8,632, saving just under £100 per year. It means you wouldn’t have to start paying NI until you earned over £9,500. Don’t be too quick to see this as a win though, as it will also mean that more people will not be making enough NI contributions to qualify for the full state pension.
3. Council tax will rise
Local authorities will receive the power to increase council tax by up to 2% from April or up to 4% if the council has adult social care responsibilities. This means as much as £70 extra per year on the average band D council tax home in England.
4. Inheritance tax breaks will become more generous
The Residence Nil Rate Band has been steadily rising since 2017 and is expected to reach the planned maximum of £175,000 in 2020. This is the amount you are allowed to leave tax-free if it comes in the form of a house of residence and only if it is passed to your children or grandchildren. In combination with the standard nil rate band (applicable to the rest of your assets excluding your house of residence) a single person is entitled to leave a maximum of £500,000 through inheritance tax-free.
5. State pension due for the biggest increase since 2012
State pensions are expected to go up by 3.9% from April. There are currently two state pension plans in place. Those on the old plan would have started receiving their state pension before 6 April 2016 and are due to receive an increase of £5.05 per week for a total weekly payment of £134.25. Those on the new plan and received their state pension after this date will see an additional £6.60 per week and receive a total weekly payment of £175.20. Don’t forget however, that the state pension age went up for women in 2018 to 65, and for both men and women, it’s due to go up to 66 come October 2020.
6. Overdraft charges are changing
In June 2019, the Financial Conduct Authority (FCA) instructed banks to make their overdraft charges simpler to understand. A deadline of April 2020 was set and in January this year, a host of banks announced that they would in fact be increasing charges in order to comply with the new rules, which stipulates that only a single interest rate can be charged. It means that around 8 million people will actually be paying more as a result of this change and not less.
7. Second homeowners to receive less tax relief allowance
Private residence relief (PRR) allows landlords to reduce their capital gains tax when selling a property they used to live in. The amount of reduction was determined by the length of time the property was used as the main residence plus 18 months. From April 2020 onwards, the extra time allowance will be slashed down to 9 months. What’s more, sellers will have only 30 days from completion to pay their tax bill.
8. Cuts to tax relief for landlords continue
Since 2017, residential landlords started seeing changes to what they were allowed to claim for as expenses from renting out property, and what tax relief they could receive. One of the biggest cuts was the reduction of how much of the mortgage interest could be claimed as an expense. Come April 2020 only 25% of the mortgage interest will be an allowable expense. This allowance will be scrapped completely by 2021 and replaced with a 20% tax credit.
9. 75s and over to lose their free TV licence
The Government has announced that they would no longer be funding for TV licences for those over 75. From 1 June 2020 only those who are aged at least 75 and receive pension credit will be eligible to apply for a free TV licence.
10. Student loan repayments to fall
New rates are expected to go ahead. Those on Student Loan Plan 1 will only have to start paying back their loan once they earn £19,390 and over – this is up from £18,935. Those on Student Loan Plan 2 will have to start their repayments once they earn at least £26,575 – up from £25,725. The plan you are on is dependent on when you started university and the different plans also have different rates of interest. Despite the amount of debt a student is likely to rack up, it’s expected that a whopping 81% of students will not pay off their loans in full.
* This article has been researched by Marketing Assistant, Jamie Hill.