April 6 - What the new tax year means to you

As a the new tax year begins – 6 April 2010, with it come some new changes to the financial sector.

The two main changes that are most likey to affect consumers are the increased Individual Savings Account (ISA) allowance (which kicked in last October for those aged 50 and above), and the new higher rate tax bracket, which will affect anyone earning over £150,000 per year.

Increased ISA Allowance

The amount of money that can be put into ISAs was today increased from £7,200 per year to £10,200. This means that all UK savers can now invest this higher amount spread between cash Isas and investment ISAs.

The new increased allowance follow the previous rules that limit the proportion that can be deposited into a cash ISA each tax year to half of the total allowance, so savers can now add up to £5,100 into a cash ISA and pay no interest on the interest earned. As always, investors can use up the entire £10,200 limit on investment ISAs, while paying no capital gains tax on the returns.


New higher tax rate

A new 50% tax rate for top earners has come into force in order to boost pulic finances. This will affect the UK's 300,000 highest earners, out of the 29 million income tax payers and aims to raise an extra £2.4bn by next year.

On top of this, the 600,000 people who currently earn more than £100,000 a year will have their personal tax allowance eroded, which is estimated to raise £1.5bn for the government.

Together with increased tax on pension contributions, which starts in 2011, the UK's top 600,000 earners are expected to pay an extra £7.5bn  in tax each year.

But the Institute of Directors (IoD) has argued that the new rate will damage business confidence, foreign investment and entrepreneurial aspiration.

"We believe the 50p rate is likely to raise little or no tax overall in the short-term, and lead to lower overall tax revenues in the medium to long-term," said an IoD spokesman.

The directors' organisation highlighted that the new rate will push some high earners to move abroad to countries that have lower taxes.

It added that some directors of multinational companies may also be tempted to relocate their headquarters abroad, thus reducing the scope for the government to levy corporation tax.

In other changes triggered by the the start of the new tax year, child tax credit has been increased by £20 a year.

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