student loans

April 2015 tax rates applied

From 6th April 2015, new tax thresholds and personal allowances will apply, and The Salary Calculator has been updated with these new values.

Although the default results are still for the current tax year, when you enter your details into the take home pay calculator, you will see a summary line at the bottom of the results showing how things will change from 6th April. Click on this line and you can see a side-by-side comparison of the 2014/15 and 2015/16 tax years, and a breakdown of how it will affect your take home pay. You can also choose 2015/16 in the tax year drop-down in the normal take home calculator.

The main change this year is an increase in the default personal allowance from £10,000 to £10,600 – which means you can earn an extra £600 without paying any income tax. The default tax code will change from 1000L to 1060L (if your tax code is different, it will probably change for next year to reflect the larger personal allowance). The Student Loan repayment threshold has also increased from £16,910 to £17,335, potentially saving those who are repaying their loans £38.25 per month (although this will also mean it takes longer to repay your loan).

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None of the content on this website, including blog posts, comments, or responses to user comments, is offered as financial advice. Figures used are for illustrative purposes only.

Understanding student loans

I discovered an excellent article today by Martin Lewis, laying out the facts behind student loans – how they work and how they are repaid. There are a number of common misconceptions about student loans, and this article sets out all the information you would need to understand if you were considering going to university (or sending one of your children). Topics covered include:

  • If you take a low paying job after graduation, you’ll only repay a small amount of the loan (or none of it!)
  • Monthly repayments under the new loan system are lower than under the previous system
  • Your monthly repayments are the same, no matter how high your tuition fees are
  • You only start repaying once you leave university and start earning
  • You will still be able to get a mortgage

To learn more about all of these and more, check out Student Loans Mythbusting.

You can see how much your student loan will cost each month, and how long it will take to repay, by using the tool on our sister site Loan Tutor.

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Wednesday, October 22nd, 2014 Student Loan No Comments

2014 Budget

Later today, the Chancellor will deliver his 2014 Budget to parliament, setting out his plans for the next few years. The Budget is the Chancellor’s opportunity to explain his policies and how they will affect the economy as a whole, and also what differences will be felt by ordinary members of the public.

He is likely to make much of the fact that the tax-free personal allowance (how much you can earn without paying income tax) has increased to £10,000 from April 2014, a coalition pledge delivered 1 year early. There is also talk that he might announce plans to raise the threshold for 40% tax (the amount at which you start paying income tax at 40% rather than 20%) in future years. This would probably lower the tax paid by those in middle management positions, say, and those in more senior roles.

The income tax and National Insurance rates which will take effect from 6th April 2014 have already been applied to The Salary Calculator, so you can easily see how your take home pay will be affected by the new tax year. You can also view a side-by-side comparison of 2013 and 2014 so you can see where the differences come from.

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Budget 2013

In yesterday’s budget, the Chancellor George Osborne outlined his plans for the next couple of years. In terms of take home pay from April onwards, there were no real surprises – the personal allowance has been increased and the top “Additional rate” tax has been reduced from 50% to 45%. In an earlier blog post I have described how these changes have been applied to The Salary Calculator.

Those who are repaying their student loan could be saving as much as £50 next year, as the threshold for repayment has increased from £15,795 to £16,365 – so the deductions from their salary will be less from April. However, the flip side of this is that because less of the loan is being repaid, it will take longer for the loan to be paid off in full and therefore will cost more in the long term.

What I found most interesting about the Chancellor’s announcements yesterday was the extension of an existing scheme for people buying their first house (FirstBuy) to allow more people to take part. The new scheme is called Help to Buy, and will help people to buy a new-build home with a 5% deposit, even if they can’t get the rest of the 95% from a mortgage lender. The government will provide a loan (interest-free for 5 years) for up to 20% of the value of the house, leaving buyers to find only 75% from a mortgage lender. In return, the government will get a share of the equity in the house – so if the house price increases, the amount repayable when the house is sold will increase at the same rate. This scheme is available to first-time buyers and to people who are already on the housing ladder – it does not have to be your first house purchase – and the value of the house can be up to £600,000.

There is also a scheme to help people buy houses which are not new-built, where instead of providing some of the money, the government will guarantee some of the mortgage so that if the buyers default, the lender gets some of the money from the government. This is aimed at encouraging lenders to allow people with small (5%) deposits to borrow.

If it takes off, this scheme has the potential to help people who are currently struggling to buy a home because they don’t have a large enough deposit. It may also help to stimulate the house construction industry, and bolster a flagging property market. The treasury has provided an infographic with some details.

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Thursday, March 21st, 2013 Economy, Mortgages, Pay As You Earn 2 Comments

New – “Plan 2” Student Loans

The Salary Calculator has been updated to support the latest changes to student loan repayments which will take effect for some tax payers next April. For students who start their courses this autumn, the way that deductions will be calculated when they enter the workplace will be different from the deductions applied to students of previous years.

Students whose courses started before 1st September 2012 (including those of you who have completed your course and have even started repaying) will see no change, and will repay the loan with deductions of 9% of your salary which is over a threshold of £15,795 per year. This is as before, but it is now called “Plan 1”. If your course started after 1st September 2012 and you are resident in England or Wales, you will repay under “Plan 2”. Plan 2 repayments are also made at a rate of 9%, but only on salary over a threshold of £21,000 per year. This means that deductions will be lower, and repayment of the loan will take longer. Of course, most students who started their course this autumn will not be expecting to enter employment for a few years, and deductions are only made from the April after you finish your course. However, if your course is short or this will apply to you when you graduate and you would like to see how it will affect your take home pay, The Salary Calculator will show you if you tick the “Plan 2” box. Check out The Salary Calculator to see what your Student Loan deductions will be.

It is in fact possible to have a loan under Plan 1 and a loan under Plan 2 – for example, if you have studied on more than one course. In this case, the deduction from your salary is still just at 9% (over the Plan 1 threshold of £15,795), but the repayment is split between your two loans. Deductions due to salary between £15,795 and £21,000 go towards repaying the Plan 1 loan. Any deductions from salary over £21,000 go towards repaying your Plan 2 loan.

Plan 2 loans also have a different interest rates charged from Plan 1 loans, which at the moment are higher than Plan 1 interest rates. This, coupled with the lower monthly repayments made under Plan 2, means that students with Plan 2 loans will spend more time (and more money!) repaying their loans. Our sister site Loan Tutor has a student loan repayment tool which will allow you to estimate how long it will take you to repay your student loan given your salary, outstanding loan amount and repayment method (i.e. whether your course started after 1st September 2012 or not).

For more information about student loan repayment, see the Student Loan Repayment website.

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