New tax year and changes to your benefits

 
Fireworks and wine The changes will leave some people less willing to celebrate

Few people will consider it a cause for celebration - but 6 April marks the start of the new tax year.

This coincides with a series of changes to taxes, some benefit entitlements, and rights for employees.

Some suggest that these changes will show the impact of the government's austerity measures.

Ministers argue that the changes are needed to tackle the deficit and to improve the entitlements system.

Tax changes

Changes to the thresholds in the income tax system will push thousands of people into new tax bands.

The Institute for Fiscal Studies (IFS) estimates that 500,000 people will no longer pay income tax because the point at which any income tax starts to be paid - known as the personal allowance - has risen by £1,000 to £7,475.

But the IFS also estimates that 750,000 people have become higher rate taxpayers, because the basic rate limit has fallen from £37,401 to £35,001.

A long-term plan from the previous government means the main rate at which National Insurance is charged is going up. This employee contribution rate for those who qualify is rising from 11% to 12%.

Key entitlements for 2011

  • State pension: £102.15
  • Carer's allowance: £55.55
  • Statutory maternity pay: £128.73

Changes made 11 April 2011. Each is per week.

Those who must pay a contribution over the upper earnings limit, estimated as those earning more than £817 a week, will see that rise from 1% to 2%.

A new stamp duty rate of 5% will be charged on residential property purchases of more than £1m. This is expected to relate to 1% of housing transactions.

For those who have furnished holiday lettings, new tax rules mean losses cannot be offset against other income in the same tax year.

For businesses, the 2% reduction in corporation tax came into effect at the start of April, with future falls announced in Chancellor George Osborne's Budget.

Benefits

The annual increase in the state pension, as well as benefit entitlements, will actually kick in on Monday, 11 April.

The uprating of entitlements is aimed at accounting for the effects of inflation, so there are a host of new benefits where payments will rise.

However, the measure used to judge how much these entitlements increase by is changing, and is not uniform across all pensions and benefits.

How your benefits will change

Type of benefit Previous method of annual increase in April New method of annual increase in April 2011

Jobseeker's Allowance, Income Support, Housing Benefit, and other income-related benefits

The Rossi index of inflation - which does not include housing costs, rent and council tax - in September

Consumer Prices Index (CPI) in September 2010: 3.1%

Disability Living Allowance, Carer's Allowance and other non income-related benefits

Retail Prices Index (RPI) in September

Consumer Prices Index (CPI) in September 2010: 3.1%

State pension

Retail Prices Index (RPI) or 2.5%, whichever is higher in September

Retail Prices Index (RPI) in September 2010: 4.6% (this method will change in subsequent years)

Tax credits and public sector pensions

Retail Prices Index (RPI) in September

Consumer Prices Index (CPI) in September 2010: 3.1%

So, the basic state pension will increase by £4.50 to £102.15. This is because it is linked to the Retail Prices Index measure of inflation the previous September, which was 4.6%.

From now on, it will rise each year in line with average earnings, the Consumer Prices Index measure of inflation, or 2.5%; whichever is highest.

The majority of working age benefits will increase by 3.1% on 11 April. That is because these benefits are already linked to the CPI rate of inflation from the previous September.

On 1 April, the first element of changes to housing benefit came into force. This affected new claimants, with existing claimants' entitlements changing later in the year or in subsequent years.

Other pensions

A new reduced annual allowance for tax-free pension saving is now in place.

Pension contributions that qualify for tax relief will be reduced to an annual allowance of £50,000 instead of the previous limit of £255,000.

New rules from 6 April also mean a change to converting pension pots into income.

These include the end of the effective compulsion to buy an annuity by the age of 75.

Existing pension drawdown arrangements have also changed, which gives investors more flexibility and control over their pension options when they retire.

Tax credits and families

Some of the most controversial changes that have come into force from 6 April are changes to the thresholds in the tax credits system.

Two brothers Many of the changes - such as tax credits - will affect family budgets

These are complex but will ultimately see payments reduce faster as income rises.

Tax relief for employer-supported childcare is no longer available to new claimants who are high-earners.

Universal child benefit is now frozen for three years, at £20.30 for a first or only child and £13.40 for each other child.

Savings

The limit for saving in a tax-free Individual Savings Account (Isa) has risen to £10,680, of which half can be saved in cash.

The total amount, which has risen from £10,200, can be invested in a stocks and shares Isa.

In the future, the limit will rise each April in line with the RPI measure of inflation.

Rights for parents

New paternity leave rules, meaning that parents will be legally entitled to share time off work during their baby's first year, came into effect on 3 April.

The new rules mean parents could take six months off work each.

Additional paternity leave (APL) will allow an employee to take up to 26 weeks' leave to care for the child, on top of two weeks of ordinary paternity leave.

This can only be taken 20 or more weeks after the child's birth or placement for adoption, and once the mother has returned to work from statutory maternity or adoption leave or ended her entitlement.

 

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  • rate this
    0

    Comment number 217.

    This story etc doesnt pay the whole picture in the last 12 months I have had my salary reduced by over 4k as the job I was doing was axed , my wife and I have not receieved a pay rise last year or this year . We will lose over 550 in tax credit this year so according to the calculater will be £200 worse off , that doesnt take into account inflation.

  • rate this
    -1

    Comment number 161.

    As a divorced father of 4 earning in the mid £40k's I've been hit hard. Tax rate going up, double whammy NI increase. Add to that, Child Maintenance changing so that Gross Income is considered instead of net. All too convenient timing when net income is falling. Dropping corporate tax 2% to pay for it when my employer is giving out pay cuts after inflation. I'd be better off on benefits.

  • rate this
    0

    Comment number 144.

    My working tax credits which go towards paying for my daughters nursery have now been more than halved. It is now impossible for me to pay my private rent, bills and full time nursery costs on my own. Cuts like mine make it virtually impossible to be a single working mum and I would be financially better off getting a lower paid job to increase any benefits I receive or to give up altogether.

  • rate this
    -1

    Comment number 4.

    As a higher rate tax payer who receives no benefit whatsoever I will be paying more tax because of the lowering of the 40% threshold, I'll also have to pay the new 50% rate. NI up 1%, over the upper earnings limit so thats another 1%.

    I'm beginning to wonder why I bother to stay in this country at all. Maybe I should look at becoming a non-dom - or close the business and retire in the sun.

  • rate this
    +1

    Comment number 3.

    Seems fair - I'm on 16K with no children. I cost the state almost nothing and think its only fair my taxes are reduced. (By £200 p.a. according to the BBC calculator)

 
 

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