The new tax year is upon us, and with it comes a wave of changes to UK finances and the tax system. Below is a comprehensive guide to everything that’s changing and how it could affect you.
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Tax allowance
This new tax year, the personal allowance, which is the annual amount of income you can earn without having to pay tax, is rising by 0.5% from £12,500 to £12,570.
Meanwhile, the threshold for paying the higher rate of income tax increases from the current £50,000 to £50,270 a year. These rates are expected to be frozen for the next five years.
Investors should also note that the annual ISA allowance will remain at the current £20,000 limit this tax year.
And like the personal allowance, there are rumours that it could also be frozen for the next five years, which makes it especially important to make sure that you’re using up your full allowance and therefore maximising your savings through one of our top-rated stocks and shares ISAs.
State Pension
In line with the triple lock mechanism, the UK State Pension is increasing by 2.5% this tax year.
Those who receive the full new State Pension will now get £179.60 a week, up from £175.20, or an extra £4.40 a week. Those eligible for the basic State Pension will get £137.65 a week, up from £134.25 which is an increase of £3.40.
Universal Credit
On top of the £20 a week uplift which has been confirmed to continue until September 2021, Universal Credit is rising.
Here is a comparison of previous Universal Credit monthly standard allowances with what you will be entitled to this tax year.
Circumstance | Allowances to April 2021 (without the £20 uplift) | Allowances to April 2021 (with the £20 uplift) | New allowances for April 2021 to Sept 2021 (with the £20 uplift) | New allowances for Oct 2021 to Mar 2022 (after the end of the £20 uplift) |
Under 25 and single | £256.05 | £342.72 | £344.00 | £257.33 |
25 or over and single | £323.22 | £409.89 | £411.51 | £324.84 |
Joint claimants both under 25 | £401.92 | £488.59 | £490.60 | £403.93 |
Joint claimants, one or both 25 or over | £507.37 | £594.04 | £596.58 | £509.91 |
Claimants caring for a disabled person will also see their monthly boost increase from £162.92 to £163.73 this tax year.
Child Benefit
Child Benefit is increasing from £21.05 to £21.15 a week for the first child and from £13.95 to £14 a week for subsequent children in this new tax year.
Working Tax Credits
The £80 a month Working Tax Credit uplift is coming to an end. Households who have been receiving this benefit will instead get equivalent support in the form of a one-off payment of £500.
If you are eligible, you should get the payment by 23 April 2021. You do not need to apply for it. HMRC will contact you to confirm your eligibility.
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Pension Credit
This benefit is available to people over State Pension age on a low income. It tops up your weekly pension payment to £173.75. This figure is rising to £177.10. You could also get extra help if you are carer, severely disabled or responsible for a child or a young person.
Statutory Sick Pay
Statutory Sick Pay rates are also changing this new tax year. While the minimum amount you need to earn still remains at £120 a week, your payments will now rise to £96.35 a week.
Housing Benefit
As of 6 April, Housing Benefit has increased from £58.90 to £59.20 a week for those under the age of 25, and from £74.35 to £74.70 a week for those over the age of 25.
Personal Independence Payments (PIP)
Personal independence payments are rising from £89.15 to £89.60 a week for enhanced claimants this new tax year. Standard claimants will see their PIP rise from £59.70 to £60 a week. The mobility component of PIP is also rising from £62.25 to £62.55 a week for enhanced payments and from £23.60 to £23.70 a week for standard payments.
Disability Living Allowance
The maximum amount of disability living allowance you can claim is increasing from £89.15 to £89.60 a week. The lowest amount has risen from £23.60 to £23.70 a week while the middle amount has risen from £59.70 to £60.00 a week.
Parental Pay
The rate of pay for maternity, paternity, adoption and shared parental pay is also going up this tax year from £151.20 to £151.97 a week.
New government-guaranteed mortgages
During the pandemic, 95% mortgages have pretty much disappeared from the market. They are set to come back this tax year (from 19 April) after the chancellor launched a mortgage guarantee scheme.
The scheme helps buyers to purchase a property with just a 5% deposit, with the government guaranteeing the rest up to a maximum of £600,000. The likes of Barclays, Lloyds, Santander and HSBC have already announced that they will be offering these mortgages.
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The post New tax year: A guide to changes in UK finances in 2021 appeared first on The Motley Fool UK.
