As we are now in the new tax year, there are a number of financial changes which are likely to impact on your monthly budget and long-term saving goals. Let’s have a look at five of the most significant and what they’re likely to mean for you over the next twelve months.
- 1. If you’re enrolled in a workplace pension scheme and making the minimum contribution, that will currently be 0.8% of your salary. However, from April 2018 the figure will treble to 2.4%. To avoid the increase you would have to opt out of the pension scheme, but it’s important not to put your future financial security at stake for a little extra spending money now.
- 2. The triple lock means that the State Pension increases in line with either earnings, inflation or 2.5%, whichever is highest. As inflation is currently at around 3%, pensioners will see their State Pension reach this level in order to help meet the cost of living. However, if you don’t need your State Pension because you’re still working or you have another pension, it pays not to claim it. Those on the basic State Pension receive an extra 1% for every five weeks they don’t claim it, giving a 10.4% boost for each year it’s left unclaimed. Those on the new State Pension will get 1% for every nine weeks, or 5.8% for every year they don’t claim.
- 3. The Lifetime Allowance limits how big your pension pot can become without facing severe taxation on your savings. It’s currently at £1 million, but will go up to £1,030,000 in April this year – the first rise since 2010 – giving those who are near the current limit a little extra scope to save.
- 4. A significant cut in the dividend allowance means the amount of dividend income that can be earned tax-free will be reduced from the current limit of £5,000 to just £2,000. A basic rate taxpayer receiving £5,000 in dividends will now pay £225 in tax, a higher rate taxpayer will pay £975 and an additional rate taxpayer will receive a tax bill of £1,143. The best way to avoid incurring this additional tax is by placing your investments into a tax-efficient wrapper such as an ISA or SIPP.
- 5. Currently, a spouse can inherit the ISA holdings from a deceased partner tax-free, but this doesn’t extend to any interest generated, which can cause problems when the administration of an estate takes a long time. From April 2018, however, the deceased person’s ISA will become a ‘continuing ISA’, which means that no further deposits can be made but any holdings, including growth, will not incur any tax when the estate is closed formally.