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New financial year sees raft of tax and benefit changes


As a raft of changes to the tax and benefits system comes into force, many experts are warning that families and those on middle incomes will feel the pinch.


Dubbed by some as ‘Worse-off Wednesday’, today sees the start of the new 2011/12 tax year and the introduction of a plethora of reforms which could cost British households more than £2 billion this year.


From 6 April the personal income tax allowance – the amount of money you can pay before you start paying tax –increases from £6,475 to £7,475 for those aged under 65.


While the move is expected to take around 800,000 people out of tax altogether, others will be less well-off as the threshold at which people have to start paying the higher rate of tax has been reduced by £2,400 to £35,000.


It means that individuals must now start paying the higher 40% rate of tax when their income exceeds £42,475 (previously £43,875).


In addition, national insurance rates have risen from 11% to 12% for employees and from 8% to 9% for the self-employed.


Meanwhile, changes to the welfare system will leave many families worse off, with child benefit now frozen for the next three years. It will be removed completely for families with a higher rate taxpayer in 2013.


Higher rate relief on employer-supported childcare has also been withdrawn from today, although employees already receiving vouchers or employer-supported childcare will continue to benefit at the higher rates where applicable.


Some analysts have also warned that linking increases in benefits to CPI inflation rather than RPI inflation may reduce social welfare payments by some £1.8bn.


Other changes coming into effect include: a new 5% stamp duty for homes worth more than £1 million; restrictions on tax relief on pension contributions for those on more than £150,000 a year; an increase in the annual ISA limit to £10,680; and a rise in the annual capital gains tax allowance from £10,100 to £10,600.


To discuss how the latest tax changes may affect you, please contact us.