What does the new tax year mean for you?
As we start the 2021/2022 tax year, here’s what it means homeowners and homebuyers.
April 20, 2021
6 minute read
Personal allowance increases
The amount of money you can earn before paying the basic rate of income tax of 20% has increased from £12,500 to £12,570. This is known as the personal allowance. It may be bigger if you claim Marriage Allowance or Blind Person’s Allowance. And it’s smaller if you earn over £100,000.
The starting point for paying the higher 40% tax rate is now £50,271 – up from £50,001. However, the threshold at which you start paying the third and highest rate of income tax of 45% – the additional rate – remains the same and applies to taxable income over £150,000.
And when it comes to paying tax, it’s essential to make sure you’re on the right tax code – this is used by your employer or pension provider to work out how much income tax to take from your pay or pension. HMRC will tell them which code to use to collect the right tax. For more information and to check if your tax code is correct, click here.
Your new ISA allowance starts
The start of the new tax year also means you get your new ISA allowance. The amount you can put in each year remains £20,000. And can pay into a mix of ISAs, but you can only pay into one of each kind of ISA in each tax year. These include cash ISAs, stocks and shares ISAs, innovative finance ISAs and Lifetime ISAs. And remember, each individual gets this allowance. So if you’re married and one spouse has used their full allowance, you may choose to max out the other partner’s allowance too if you can afford to.
If you’re saving up for a deposit for your first home, you should consider getting a Lifetime ISA if you’re eligible. These are for those aged 18-39 and are for buying a first home or for retirement. You can put in up to a maximum of £4,000 a year until you’re 50. And you’ll get a 25% bonus on your savings of up to £1,000 a year. If you have an existing Help to Buy ISA (now closed to new applicants), you can still use them but you will need to buy before December 2020 to get the 25% bonus.
But whatever your reason for saving money, the principles of how to save as much as possible remain the same. Firstly, go through your budget and work out where you can save money. Then work out how much you can afford to put away each month. Next, set up a standing order for that amount so the cash leaves your account on payday. That way you won’t be tempted to spend it!
One way to make sure you are making the most of your money is to consider getting an Independent Financial Adviser.
Use your home to earn tax-free
Did you know you can earn up to £7,500 per year from having a lodger in your home before you need to pay any tax on the income? This is thanks to the government’s rent a room scheme. The threshold of how much you can earn tax-free through the scheme hasn’t increased this year. However, it’s still a useful way of earning money for people who use it.
Under the scheme, individuals can earn up to £7,500 tax-free. But if you share income from the property with another person you can only claim up to £3,750 each.
To qualify, you must offer fully furnished accommodation in your main home. And remember to get permission from your mortgage provider before starting. You don’t need to own the property to be able to use the scheme though. But renters will need to get their landlord’s permission. And whether you rent or own your property, you’ll also need permission from your home insurance provider too.
And under the property allowance, you can earn up to £1,000 from your property each year tax free. While the Rent-a-room scheme may be a better option for you if you’re letting a room out, this could be useful if you rent out your driveway, for example.
Work from home tax relief
If you have to work from home for even one day this tax year due to COVID-19, you can claim tax relief for the entire year.
You can find out more information and apply online here. If you’re eligible, you’ll have two options. For the current tax year, you can claim £6 week without having to show evidence of the extra costs you’ve incurred. Alternatively, you can choose to claim for the exact amount you’ve incurred if this is more than £6 a week. However, you’ll need to provide evidence.
The amount of tax relief you’ll get will depend on your income tax band. Assuming you’re claiming tax relief on £6 a week, if you pay the 20% basic rate of tax, you’ll get £1.20 a week in tax relief. This works out at £62 for the entire year.
While those paying the higher rate of 40% can get tax relief worth £2.40 a week. This adds up to £124 a year.
And if you’re eligible, you can claim for the 2020/2021 tax year too.
Stamp Duty surcharge for non-UK residents
If you’re not a UK resident, buying property has just become more expensive. That’s because a new stamp duty surcharge was introduced on the 1st April for non-UK residents buying properties in England and Northern Ireland.
The rules mean someone who isn’t a UK resident will pay stamp duty at a rate 2% higher than those that apply to purchases made by UK residents.
Want to see how much you could save with the stamp duty holiday? Use our handy calculator to find out.
Clampdown on holiday let loophole
Second homeowners are facing a clampdown over a loophole that lets them save cash by claiming the properties are available as holiday lets when they’re not.
In England, holiday lets are liable for business rates instead of council tax if the owner says they’ll make the property available to let for 140 days in the coming year. But there are no checks on if the owner actively attempts to let the property.
There are more than 60,000 properties classed as holiday lets that are liable for business tax. And in the vast majority of cases this means paying nothing.
However, the government will now legislate to stop owners of properties that aren’t genuine letting businesses from doing this.
Other key changes
The National Living Wage rose from £8.72 to £8.91 per hour, due to changes that came into force on 1st April. The National Living Wage now applies to all workers aged 23 and over. The previous age of eligibility was 25.
With Statutory Sick Pay, the amount you’ll need to earn to qualify remains £120 a week. But payments have risen from £95.85 to £96.35 a week.
While the rate of pay for maternity, paternity, adoption and shared parental pay has increased from £151.20 to £151.97 per week. Also, child benefit rose to £21.15 per week for the first child and £14 per week for subsequent children on 12th April. Child benefit is paid monthly and gives claimants national insurance credits that can count towards their state pension. However, if you or your partner earns more than £50,000 a year, a proportion of it needs to be paid back at the end of the tax year. As the threshold for paying the higher rate of tax has increased from £50,001 to £50,271 this tax year. This means some basic rate tax payers won’t qualify for the full amount of child benefit. If you or your partner earns more than £60,000 the whole amount must be repaid.
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