New financial year: The tax and pensions changes coming into effect

Two-thirds of SMEs have scaled back plans for future capital investment. Picture: John Devlin
Two-thirds of SMEs have scaled back plans for future capital investment. Picture: John Devlin
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Tax and pensions changes are coming into effect as the new financial year gets under way from Saturday - meaning people may have more money coming in and perhaps more going out.

Many are set to benefit from the increase in the personal allowance, though higher rate threshold changes in the rest of the UK won’t be applied in Scotland.

The UK-wide tax-free personal allowance has been increased to £12,500 for 2019-20, from £11,850 previously, meaning an extra £130 for the typical basic rate taxpayer.

People do not have to pay income tax on money earned below this amount.

READ MORE: Middle earner tax gap set to grow

The higher rate threshold in Scotland will remain at the same level of £43,430, despite Chancellor Philip Hammond announcing that the threshold in the rest of the UK will rise to £50,000.

Workers will also benefit from an increase in the National Living Wage from £7.83 to £8.21 from April, helping around 1.8 million people.

A full-time worker on the National Living Wage will earn an extra £690 over a year.

The National Minimum Wage has also been increased, to £7.70 per hour for 21 to 24-year-olds and £6.15 per hour for 18 to 20-year-olds.

Taken together with the National Living Wage, 2.1 million people are set to get a pay rise, the Treasury said.

The Treasury said a fuel duty freeze for the ninth year in a row and increases to work allowances in Universal Credit will go towards helping families with the cost of living.

READ MORE: Warning top earners could leave Scotland after tax changes

People saving into a workplace pension who are only paying in the minimum amount allowed will see more money going out of their pay packets as minimum contributions have increased from April 6.

Ten million people have already been automatically enrolled into workplace pensions.

A total minimum contribution of 8% of qualifying earnings must be paid into pension pots, of which employers must contribute at least 3%, with the remaining 5% made up by staff.

Previously, total minimum contributions were set at 5%.

Hargreaves Lansdown calculates the increase could mean an average worker sees an extra £30 leave their April pay packet to cover the cost of pension contributions.

But while this may put an added squeeze on incomes, in the longer term the move could make employees much better off.

Hargreaves Lansdown calculates the rise could mean an extra £55,000 sitting in a 22-year-old’s pension pot by the time they retire.

Financial Secretary to the Treasury Mel Stride said: “Our Budget was unashamedly for the strivers and the workers who keep the country going.”