New tax year, new allowances

Rob Morgan rounds up the key allowances and limits for the 2019/20 tax year.

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  1. Rob Morgan

ISAs

This tax year’s (2019/20) ISA allowance is £20,000. It is available to UK residents over 18, and can be split between a Cash ISA, a Stocks and Shares ISA, and an Innovative Finance ISA in whatever proportions you like. Charles Stanley Direct only offers Stocks and Shares ISAs.

A further option, a Lifetime ISA, can form up to £4,000 of the £20,000 ISA allowance for those eligible. Available to UK residents aged between 18 and 40 saving for retirement or a house deposit, it is possible to pay in up to £4,000 each tax year and continue making contributions up to the age of 50. The government will add a 25% bonus to contributions – a maximum of £1,000 each year.

Investments in an ISA are sheltered from capital gains tax and income tax. Remember, annual ISA allowances cannot be carried forward – if you do not use this tax year’s allowance by 5 April 2020 it will be lost.

 

Junior ISA

The Junior ISA allowance has risen to £4,368. A parent or legal guardian of an eligible child can open a Junior Stocks & Shares ISA, manage the account and make the investment decisions. Grandparents, relatives or family friends can then also contribute at any time up to the annual investment limit.

 

Pensions

The maximum that can be contributed to all your pensions during the tax year and receive tax relief (known as the 'annual allowance') remains at £40,000. Income tax relief on personal contributions is generally limited to your relevant UK earnings for the tax year.  Currently, an investor can receive up to 45% tax relief when they make a personal contribution to a personal pension such as a SIPP, with 20% tax relief paid by the HMRC to the pension and any higher and additional rate tax relief reclaimable.

From the 2018/19 tax year rates of tax and pension tax relief for Scottish taxpayers started to differ from the rest of the UK. For more information please refer to our guide.

For people who receive ‘flexible’ retirement benefits, such as a flexi-access pension, a lower annual allowance of £4,000 applies.  For high earners the annual allowance is reduced on a gradual basis down to a minimum of £10,000. 

It remains possible for non-tax payers to benefit from pension tax relief to a limited extent. Relevant UK individuals under age 75 can contribute up to £2,880 to a pension and receive tax relief of £720, resulting in a total contribution of £3,600 irrespective of earnings.

The cap on the total value of your pensions from which you can draw benefits without triggering a tax charge (known as the “lifetime allowance”) is now £1,055,000 and is to rise with inflation. Defined benefit (‘final salary’) pension benefits are also tested against this limit based on the amount of income they provide when they come into payment.

The tax treatment of pensions depends on individual circumstances and may be subject to change in future.

 

Capital Gains Tax allowance

The capital gains tax ‘annual exempt amount’ (the maximum profit you can make on selling assets without paying capital gains tax) is £12,000.

The rates payable on Capital Gains Tax are 10% basic rate and 20% higher rate, but on residential property (other than your own home) the rates are 18% and 28% respectively. Your rate of capital gains tax will depend on your other taxable income. See the HMRC website for more. 

 

Dividend allowance

For all UK tax payers the first £2,000 of dividend income in each tax year requires no additional payment of tax – this is known as the Dividend Allowance. Dividends received above this allowance are taxed as follows:

Basic rate taxpayers 7.5%

Higher rate taxpayers 32.5%

Additional rate taxpayers 38.1%

The Dividend Allowance is separate to the income tax personal allowance (of £12,500) and the personal savings allowance (see below).

 

Personal savings allowance

The personal savings allowance grants every basic-rate taxpayer £1,000 of savings income free from income tax, with higher-rate taxpayers receiving a £500 allowance. Additional-rate taxpayers on the top 45% rate receive no allowance.

Interest from sources that are already tax free, such as assets held in ISAs and Premium Bond 'winnings', don’t count towards the allowance, but some investments do count, including holdings of gilts and corporate bonds, as well as unit trusts, OEICs and investment trusts that invest predominantly in bonds and pay interest as opposed to dividend income.

For more on tax allowances and exemptions see our Guide to the 2019/20 tax year.

 

This website is not personal advice based on your circumstances. Charles Stanley Direct is not a tax adviser.  Information contained in this article is based on our understanding of current HMRC legislation.  Tax reliefs are those currently applying and the levels and bases of taxation can change.  Tax treatment depends on the individual circumstances of each person or entity and may be subject to change in the future.  If you are in any doubt, you should seek professional tax advice.

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