April 2018 will bring plenty of changes that will affect your personal finances. Here are 10 things you need to be aware of.
1. Wages are going up
On 1 April 2018, the National Living Wage will rise. If you are a full-time worker on basic pay the increase should mean you get £600 more over the year, but the exact amount will depend on your age and how many hours you work.
If you are over 25, your hourly basic pay will rise from at least £7.50 to £7.83. Workers aged 21 to 24 will get an increase from £7.05 to £7.38, and those aged 18 to 20 will get a rise in minimum wage to £5.90.
Anyone aged 16 to 18 should get an increase in their basic wage from £4.04 to £4.20.
Apprentice wages will also be affected with their basic hourly rate going up from £3.50 to £3.70. To get this you must be either under 19, or over 19 but only in the first year of an apprenticeship.
Feel you should be earning more? Read our guide to getting a pay rise.
2. Pension contributions will rise
You may be getting paid more, but you’ll also be paying more into your workplace pension in 2018. From 6 April, the minimum pension contribution for workplace pension schemes will rise from 0.8% of your salary to 2.4%.
That is more than triple the current rate and means someone earning the average salary of £27,000 will see their annual minimum pension contribution rise from £169 to £517.
“While some might be tempted to opt-out due to the extra hit on their disposable income, doing this would mean missing out on the bonus of employer and government contributions, the latter in the form of tax relief,” says Tom Selby, senior analyst at AJ Bell.
“The increase coming in April will take the total contribution up to 5% once the employer contribution of 2% and tax relief of 0.6% have been added. Those numbers will increase again in April 2019.”
The gradual increases in the minimum contributions to workplace pensions will mean that someone paying the bare minimum into their pension will build up a pension pot worth £219,000 over 40 years, according to AJ Bell.
However, only making the minimum contribution could leave you struggling in retirement if you have delayed starting a pension.
Find out how much you should be paying with our guide to pension contributions.
3. Lifetime allowance increase
Before you get too carried away with how much you are paying into your pension, remember that there is a limit on how big your pension can get before the taxman swoops in and takes a chunk.
The Lifetime Allowance means if the total value of your pension pot rises above £1 million you could face a punitive tax charge of 55% if you take the excess as a lump sum, or 25% if you take it as income.
The good news is the Lifetime Allowance is going up in 2018 for the first time since 2010. In April it will rise in line with inflation to £1,030,000.
“It means there is a bit more scope for anyone who is approaching the £1 million mark and an extra £7,500 of tax-free cash for anyone who is lucky enough to have reached the allowance,” says Mr Selby.
Here is everything you need to know about the Lifetime Allowance.
4. State Pension on the up
Thanks to the good old triple lock the state pension will go up by 3% in April. The triple lock is a government promise that the state pension will rise every year by the highest of earnings, inflation or 2.5%. It isn’t popular with many in the government as it is costing the Treasury a lot of money, but no-one has dared scrap it.
A report last March called for the triple lock to be ditched, and even former pensions ministers have said it needs to go.
Pensioners have rising inflation to thank for the rise this year, although inflation also means the cost of everything they’re buying is on the rise too.
You can find out how much state pension you are likely to receive when you retire by applying for a state pension forecast from the government.
Another way you can increase your state pension is to defer when you take it. Once you reach state pension age you have to apply to the government to start receiving your pension, if you wait a while to start claiming you’ll get slightly more when you do claim it to make up for the missed years.
5. Personal Allowance increase
From April 2018, we will all be able to earn £11,850 a year before we start paying income tax, a £350 rise from thelevel in the 2017/18 tax year.
6. Junior Isa allowance rising
While the main individual savings account (Isa) allowance will stay the same in the 2018/17 tax year – sticking at £20,000 – the Junior Isa allowance will rise from £4,128 to £4,260.
If you have a child, or grandchild, aged under 16 they can have a Junior Isa. They work just like a normal Isa with all gains tax-free, but any money paid in cannot be accessed until the child turns 18.
7. Got a Help to Buy Isa – don’t miss out on £2,100 in free cash
If you have a Help to Buy Isa then prepare to move your money into a Lifetime Isa (Lisa) before 6 April, otherwise you will miss out on up to £2,100 in government bonuses.
Until 6 April, anyone who built up funds in a Help to Buy Isa before April 2017 can move the money into a Lisa without it affecting their £4,000 Lisa allowance.
This means if you had a Help to Buy Isa between December 2015 and April 2017 and paid in the maximum allowable contributions you will have £4,400 that you can move into a Lisa. Shift that into a Lisa and you’ll receive a 25% government top-up on it. Plus, you can pay £4,000 into the Lisa this tax year and get the top-up on that too. That adds up to a £2,100 payment from the government.
But, if you miss the 6 April deadline, anything you transfer across will count as part of your annual Lisa allowance. So, get a wriggle on!
Do note that you can’t, however, access cash in your Lifetime Isa until you’ve held it for a year.
Not sure you want to move your money? Find out everything you need to know with our Lifetime ISA guide.
8. Isa inheritance rules are changing
Since April 2015, spouses and civil partners have been able to inherit their deceased partner’s Isas without them losing their Isa status. Currently, the value of their Isa holding upon their death is granted as an additional permitted subscription (APS) to the surviving spouse. This means they can go and invest that amount into Isas without it affecting their own Isa allowance.
However, this system was flawed as the (APS) didn’t account for any growth in the Isa holdings between the person dying and their estate being released so their partner can invest the money in their own name. This can mean part of their Isa can’t retain its tax-free status as the APS doesn’t cover it all.
This will change from April when the Isa of someone who has died will become a “continuing Isa” that won’t accept any more deposits but will continue to grow and remain tax-free. The APS will be valued when the estate is formally closed.
9. Marriage Allowance will rise
The new tax year will also bring a rise in the Marriage Allowance with married couples able to pass up to £1,185 of their personal allowance to the higher-earning spouse.
In 2018/19, the Marriage Allowance allows a spouse who earns less than £11,850 – so pays no income tax – to pass up to £1,185 of their personal allowance to their husband or wife, provided they don’t earn more than £45,000 a year (£43,000 in Scotland).
This allows married couples to bring down their overall income tax bill. Despite the money-saving attraction as many as two million married couples don’t take advantage of this tax break.
10. Dividend Allowance being slashed
After all that good news, there is one change that could put a serious dent in your earnings in 2018. The Dividend Allowance – how much you can earn in dividends before tax is due – is being slashed from £5,000 to £2,000 in April.
Any income you receive from dividends above the allowance is taxed at a rate of 7.5% if you are a basic-rate taxpayer, soaring to 32.5% if you are a higher-rate taxpayer and 38.1% if you are an additional rate taxpayer.
In pounds and pence, someone who receives £5,000 in dividends would previously have paid no tax, but next year will be hit with a tax bill of £225 if they are a basic-rate taxpayer, £975 for a higher-rate taxpayer and a whopping £1,143 for an additional rate taxpayer.
The way to avoid this big new tax bill is to get your investments into a tax-efficient wrapper such as an investment Isa or Sipp (self-invested personal pension) before the allowance cut comes in. Do that and you will be able to continue to earn dividends tax-free.
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