Archived article
Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
Every new tax year brings in changes to the rules and allowances for how much people can invest and where. And the 2020/21 tax year is no different. Below is a list of the major changes we can expect to see next tax year – covering pensions and savings, property, and employment status. Not all the detail is pinned down yet; we are still waiting for the UK Budget which is on 11 March. But this should give you a flavour of things to come.
Pensions and savings
The pension lifetime allowance should increase to £1,073,000 from 6 April 2020. This will mean lower lifetime allowance charges where someone takes pension benefits in excess of their lifetime allowance. The new lifetime allowance should be confirmed in the Budget.
The pension annual allowance is the amount someone can pay into their pension and receive tax relief. It is set at £40,000 or their taxable income if lower. But the annual allowance could be reduced or tapered (down to a minimum of £10,000) for those earning more than £110,000. The Government has pledged to review the tapered annual allowance for NHS clinicians. One solution could be to raise the £110,000 threshold to £150,000 and this could apply to all high earners. Any change should take effect from the 2020/21 tax year.
The Junior ISA (JISA) limit should increase at the same rate as inflation. The limit in the 2019/20 tax year is £4,368. The new limit is usually announced by Treasury ahead of the tax year.
The predecessor of JISA, child trust funds (CTF), were long-term tax-free savings account for children. Children got a free cash voucher of up to £250 (or £500 if parents were on a low income) from the State to be added to their CTF. The first CTFs are due to mature in September this year, as those children reach 18. Those children can withdraw the CTF funds, or they can transfer them to an ISA without the funds counting towards the usual ISA subscription limit. If you want to track down a lost CTF then, as long as you have parental responsibility for the child, you can do this by visiting the government’s website and signing into the Government Gateway.
State pension age for men and women has been gradually increasing from age 65, and will reach age 66 from October 2020. The end of a tax year is a good time for people to check what their state pension age will be and to integrate this into their retirement planning. They can do this by checking out https://www.gov.uk/state-pension-age
Property
The residence nil rate band for inheritance tax was introduced in April 2018. It is an additional nil-rate band that applies when a residence is passed on death to a direct descendent. It was originally set at £125,000, but over the past few years it has been gradually increasing, and will peak at £175,000 for the 2020/21 tax year onwards.
From 6 April 2020, tax relief will be cut for landlords who sell a property that was once their main home. A property owner usually pays capital gains tax when they sell a house (unless it was their main residence). For landlords, provided a property has at some point been their only or main home, the last 18 months of ownership qualifies for Principal Private Residence Relief (PPR), whether or not the owner was living in the property during this period. From 6 April 2020, this 18 month exemption will be reduced to nine months, meaning an additional nine months of gain may be subject to capital gains tax.
A second change affects lettings relief. The portion of the ownership where it was the landlord’s main home will attract PPR relief (plus 18 months under current rules, and 9 months from April 2020) and the remaining period of ownership can benefit from lettings relief which is capped at £40,000. From 6 April 2020, letting relief will only apply where the owner is in shared occupation with the tenant. So if the owner is not living in the property no relief will be available beyond the period for which the property qualifies for PPR.
From 6 April 2020, where a UK resident sells a UK property they must complete an online return within 30 days and pay any capital gains tax due, rather than waiting to tell HMRC in their tax return for that year. This means second home owners will have to pay any capital gains tax much earlier putting pressure on their cash flow.
Employment status
Changes to off-payroll working (IR35) will come into force for private companies from 6 April 2020. From this date the company who engages a contractor will be responsible for determining the employment status (or IR35 status) of a contract (rather than the contractor themselves) for work carried out after 6 April 2020. (There will be an exemption for small businesses.) These companies will have to be confident that the contractor is operating on a self-employed basis. This may lead to some companies being more wary about contracting out work.
These articles are for information purposes only and are not a personal recommendation or advice.
Written by:
Rachel Vahey
Rachel is Head of Policy Development helping financial advisers and planners understand the changing pensions and savings environment, as well as how new legislation and regulation affects them and their clients. She’s well known within the pensions and savings industry, and regularly speaks at AJ Bell events, alongside writing content and articles for our website.