Up to 30 million people in the British economy could be affected by changes made by recent government legislation. But what does the new financial year mean for you? Here’s an overview.
Your personal tax allowance
As far as your personal allowance goes – the amount you can earn without paying tax - it’s good news: from April 6th 2019, you’ll have enjoyed a rise from £11,850 to £12,500. That’s money straight into your budget.
What will you do with the extra disposable income? Head straight for your favourite retail therapy zone or save rainy-day pennies in an ISA? Although interest rates for savers aren’t fantastic right now, it’s helpful to have emergency funds to count on when needed.
What about your pension?
Workplace pension contributions have increased from 5% to 8% and anyone who’s not already part of a scheme will continue to be opted in by default. You can also make more personal contributions if you wish. This is because the government wants to make sure we’re well-prepared for our retirement. Given we’re all living longer, that’s a great idea.
And there’s more good news - the amount your employer contributes has increased too, from 2% to 3%, while the government also contributes with 1% tax relief.
If paying into a pension fund isn’t right for you, you can discuss opting out with your employer.
Have tax rates changed?
Yes, for the better. From the start of the new tax year, you pay tax on any earnings over £12,500. If you earn between £46,350 and £49,999, you’re now classified as a basic rate taxpayer and pay tax at 20% rather than the higher rate of 40%. Higher rate taxpayers are now classed as those earning £50,000 or more.
One possible side-effect is that this could impact any salary sacrifice benefits you’ve taken up. If your salary is towards the top end of the basic rate tax bracket you could find you’ll be exchanging the same amount of salary but receiving a lower tax break (20% as opposed to 40%). Check in with your HR team to understand how this change will impact your take home pay.
The national living wage has risen
This change is not strictly to do with the new fiscal year but comes into effect at the same time. For anyone over 25 on the minimum wage, there’s a welcome increase of 4.9% to £8.21 per hour.
For people working full time, that could mount up to £690 over a year. This change will affect some two million people and is a real boost to the economy - actual cash in actual pockets.
It’s a new year for your ISA!
Your allowance has been reset: a smart investor can save up to £20,000 tax free. Some ISAs allow instant access – though you’ll get a slightly lower interest rate to reflect this luxury – so it’s a good option to bear in mind.
How have student loans changed?
For anyone with students in the family, there have also been alterations to the amount you can earn before starting to repay a student loan. The threshold has gone up for Plan 1 loans (for students who started university between 1998 and 2011 and Scottish and Northern Irish students from 2012 onwards) from £18,330 to £18,935. So no repayment is made until the graduate is earning at least £18,935 per year.
For Plan 2 loans, (for people becoming university students on or after 2012) the threshold has risen from £25,000 to £25,725, so no repayment is made until the student is earning at least £25,725.
There’s also a new kind of loan available for post-graduate students with a repayment threshold of £21,000.
All the payments come directly from your pay automatically (unless you’re self-employed) at a rate of 9% of your salary for Plan 1 and 2 loans and 6% for post-grads.
With all these financial changes, it’s time to look at your budget and decide what to do with any extra cash.