Debt & Borrowing

New Tax Year - New Limits

Monday saw the official start of the new tax year, which meant some significant changes in taxation and benefits. This year almost everyone is a winner. About 22m basic rate taxpayers will benefit from the decision to make permanent and extend an increase in income tax personal allowances. Here's a quick summary of all the key changes.

Income tax allowances - In September Alistair Darling, the Chancellor, raised the annual personal allowance - the amount that you can earn before you pay tax - from £5,435 to £6,035 to compensate the millions of people who lost out after the abolition of the 10p tax rate. This week the allowance has increased to £6,475, which will mean that basic rate taxpayers will pay £88 less income tax a year. The government estimates the changes mean 22m basic rate taxpayers under 65 will pay £145 less tax in real terms in 2009-10.

National Insurance - A £5-a-week rise in the starting point for paying national insurance, from £90 (£4,680 a year) to £95 (£4,940) will help most basic-rate taxpayers in saving money. The news is not as good for those earning over £40,000, with the amount of earnings on which national insurance is payable at 11% rising by £3,475.National Insurance will be payable at 11% on the first £43,875 and 1% after that, up from £40,400.

Pensions - Pensioners will benefit from the basic state pension rising by 5%, based on the retail prices index (RPI) from last September. The weekly full basic State Pension rises by 5% to £95.25. With RPI now at zero per cent and expected to fall, pensions will rise by a minimum of 2.5% in further years. The Pension Credit standard minimum guarantee will increase from £124 to £130 a week for single people with couples receiving a rise from £189 to £198 a week.

Tax credits - The Treasury estimates 4m families will benefit from increased Child Tax Credits and Working Tax Credits. The child element of the Child Tax Credit has been increased by £150 in total to £2,235, helping 3.9m families. Child Benefit increases due for April were brought in January standing at £20 per week for the first child.

Inheritance Tax - For those wondering how to save on inheritance tax, some welcome news that the threshold has increased from £312,000 to £325,000.

Health in Pregnancy Grant - Some 780,000 pregnant women will receive grants of £190 under the new Health in Pregnancy Grant scheme.

Job seeker benefits - Income support, job seekers allowance, employment and support allowance and incapacity benefits are all rising by 6.3%.

Sam Jackson

Money Dashboard