In 2019/20 every individual can have an income up to £12,500 before any tax is due. That is an extra £650 on the 2018/19 allowance and will save basic- rate taxpayers £130 off their tax – almost £140 in Scotland, which has a sliding scale of rates. This allowance applies throughout the UK. People under pension age who work and pay national insurance will save a further £25 a year.
The threshold at which higher-rate tax begins has risen to £50,000 (from £46,350), except in Scotland. Higher-rate taxpayers will pay £860 less tax, though higher national insurance contributions for those who pay them will take back nearly £340 of that. In Scotland the higher-rate threshold for most income is £43,430 – the same as it was last year. People on higher rate tax in Scotland will pay around £140 less income tax than they did last year, but if they pay national insurance they will pay an extra £340, leaving them around £200 worse off.
Anyone with an income above £27,000 a year will pay more tax in Scotland this year than if they lived in the rest of the UK. If they have an income around £50,000 or above they will pay more than £1,500 extra in Scotland. Wales gets the power to set some of its own tax rates from this year, but the Welsh Government has decided to keep the overall tax rates the same as in England.
Savings and dividends
The first £1,000 a year of interest on savings is free of income tax (the first £500 for higher-rate taxpayers and zero for top-rate taxpayers). That has not changed. People whose other income from pensions or earnings is £12,500 or less can have another £5,000 of savings interest tax-free as well as the £1,000 savings allowance. Even if other income is higher than that but is below £17,500, some interest is tax-free up to that amount. The £1,000 savings allowance is on top of that. It is complex. Go to gov.uk to find out more about tax on savings interest.
The first £2,000 of income from dividends is also tax-free, again no change on the past tax year. Dividends are taxed differently from other forms of income and the changes in the tax due will be different from those applying to earned or pension income.
Income tax on savings interest and dividends is the same in Scotland as in the rest of the UK. Go to gov.uk to find out more about tax on dividends.
Allowances for married people
There are still 700,000 eligible couples who do not use the marriage allowance, which could save £250 off the tax paid by one of them in 2019/20. To benefit from the marriage allowance one of the couple should be a non-taxpayer – income below £12,500 in 2019/20 – and the other should only pay tax at the basic rate. The non-taxpayer can transfer £1,250 of their tax-free allowance to their spouse, reducing their tax bill by £250. The marriage allowance can be backdated for people who fulfilled all the conditions back to 2015/16. That could mean receiving a cheque for £900 for the past four years, as well as this year’s gain. Go to gov.uk to find out more about marriage allowance.
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If either of a couple was born before 6 April 1935, then they cannot get marriage allowance. Instead they can claim the more valuable married couple’s allowance. That is worth up to £891.50 off one partner’s tax bill in 2019/20. It can also be backdated to 2015/16 if the conditions were fulfilled.
Both allowances apply only to married couples or civil partners. Go to gov.uk to find out more about married couples allowance.
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People who make money from buying and selling things or from a small amount of freelance work – writing, book- keeping or babysitting – can take advantage of the £1,000 trading income allowance. No tax is due if total turnover on these activities is less than £1,000 a year. A similar allowance applies to small incomes from property. Go to gov.uk to find out more about property and trading income.
The tax code is the amount of income that is paid tax-free with the last zero knocked off. So in 2019/20 it will generally be 1250L indicating that £12,500 from that income source should be paid free of tax. The state pension is paid gross but is taxable and uses up a big chunk of the tax-free personal allowance. So state pensioners get a tax code much less than 1250L – perhaps 578L or 373L.
An ‘N’ at the end of the code means part of the personal allowance has been transferred to a spouse under the marriage allowance rules. An ‘M’ applies to the person who has received it. An ‘S’ or ‘C’ before the numbers indicates a Scottish or a Welsh taxpayer. These codes are decided by the recipient’s main residence and not where they work.
People with more than one source of income – a job and a pension or two pensions, for example – will have a tax code that is applied to just one income. The other income will have a BR code (or D0 for higher-rate taxpayers), so all that income is taxed. After the end of the tax year it is important to check that the correct amount of tax has been paid.
People who work and reach state-pension age – about 65¼ at the moment – should ensure their employer stops deducting national insurance contributions.
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If they have been taken after state-pension age, a refund can be claimed.
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