what do the new tax changes mean for you?

The new tax year started on 6 April, and with it came a raft of changes that will affect individuals. Some will be beneficial but others could leave you worse off.

What do these changes mean for you?

Income tax

The 10% starting rate for income tax band has been abolished and the basic rate of income tax has been cut from 22% to 20%.

The upper earnings limit for 11% national insurance contributions (NICs) has increased by £100 a week, so employees will pay 11% NICs on all earnings from £105 to £770 a week, up from £100 to £670 previously. This will add £520 a year to the NIC bills for those earning more than £40,040 a year.

Low income earners will also be worse off because of these changes: Grant Thornton has calculated that those earning between £5,931 and £15,075 a year will feel the pinch most and could be up to £152.40 a year worse off.

The main beneficiaries are those who are earning around £34,500, who will be almost £400 a year better off.

Francesca Lagerberg, head of the national tax office at Grant Thornton said: "Unfortunately for those on lower incomes, the removal of the starting rate of 10% will leave them worse off this tax year when you put together the income and NIC changes. This will make them even more reliant on the tax credits system if they are eligible to claim. If not already doing so then those on lower incomes may wish to review their tax credits position to ensure they are claiming what they are entitled to."

The main beneficiaries are those who are earning around £34,500, who will be almost £400 a year better off.

Inheritance tax

The inheritance tax (IHT) nil-rate band has risen from £300,000 to £312,000 from 6 April 2008. This means that the first £312,000 of your estate is free from IHT. However, 40% tax is levied on anything above that when you die.

Assets passed from a husband or wife, or between civil partners are tax-free but currently, unless they have made careful plans, this simply delays the tax until the death of the second spouse.

However, the rules have changed: Married couples and those in civil partnerships will be able to transfer any unused allowance from the first death to a spouse or partner, so on the second death, they can now leave up to £624,000 before death duties are incurred. This reform will be back-dated indefinitely, so widows and widowers are able to use their late partner's allowance as well as their own.

This will be welcomed by millions of ordinary families who faced a potential IHT liability because rising house prices have pushed the value of their assets above the single person's nil-rate band. Halifax estimates that around 2.4m properties are worth between £300,000 and £624,000.

Capital gains tax

Capital gains tax (CGT) is levied on the profits you make from investments. Individuals have an annual CGT allowance, which has risen from £9,200 to £9,600 for the 2008-2009 tax year, and gains up to this amount are tax-free. CGT is levied on anything above that.

The Chancellor, Alistair Darling, announced last October that he would sweep away the complex CGT system and replace it with one flat rate of 18%. This took effect on Sunday 6 April.

Currently CGT is levied at your marginal rate of tax – 40% for higher rate taxpayers and 20% for those in the basic rate band. However, taper relief can reduce the amount of tax you pay.

With non-business assets such as buy-to-let property, second homes and equity investments, the proportion of the gain on which tax is liable reduces after the asset has been owned for three years. This brings the effective rate of tax down to 24% for those in the higher-rate band and 12% for basic rate taxpayers if the asset is sold after 10 years.

Under the new CGT system everyone will pay a flat rate of 18% regardless of how long the asset has been owned. This will benefit higher rate taxpayers and some in the basic-rate band.

However, not everyone will be better off as a result of the reform. Taper relief on business assets, which include shares held through company share schemes, kicks in after two years and the effective tax rate drops to 10% for higher-rate taxpayers while basic-rate taxpayers would pay only 5%.

An estimated 270,000 people have joined the employee share scheme offered by the firm they work for and these people will be worse off under the new CGT regime.

Mike Warburton, a senior tax partner at leading financial and business adviser Grant Thornton, said: "These are the unintended losers and the Government should have done something to address this issue. It has encouraged company Sharesave schemes, but now thousands of ordinary employees, not just the highly paid executives, face much higher tax bills."