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5 key changes you need to know about for the new tax year

Here we combine key points from the Spring Budget and what tax rates and thresholds are changing for the new tax year so you can understand what key things could impact on your finances so you can plan for the new tax year.

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Changes for the new tax year April 6th

Every year, the “New Tax Year” seems to creep up on us all. We start the New Year off with a bang and good intentions for improvement. By the time we reach “Blue Monday” on 17th January our resolutions are pretty much out the window. The Spring Budget then came quickly around the corner and as the daffodils awake we realise it’s nearly April 6th, the start of a new tax year. Here we combine key points from the Spring Budget and what tax rates and thresholds are changing for the new tax year so you can understand what key things could impact on your finances and help you plan for the new tax year.

Changes in the new tax year for home buyers

Saving for a house deposit is hard and last year there were fewer low deposit mortgages around because of the pandemic. In the Spring Budget the Chancellor promised to turn ‘generation rent’ into ‘generation buy’ as he announced a new guarantee scheme that aims to incentivise lenders to provide mortgages to people with a 5% deposit for properties worth up to £600,000. This means that 95% mortgages will be back from April in the form of this new government-backed scheme. Lloyds, Barclays, Santander and HSBC have already signed up to the initiative. If you are looking to purchase a property, mortgage advice is one of the areas of financial planning Unividual provides to clients.

The Stamp Duty Holiday has been extended to the end of June also. This means people purchasing a house or apartment up to the value of £500,000 will pay no stamp duty. Within half an hour of the announcement, Rightmove reported that the use of their mortgage calculator jumped by 85%. They also reported that based on the current sales that have been agreed in England, 80% of them would pay no stamp duty due to the holiday. There will be a further extension on homes bought up to a value of £250,000 until the end of September. Stamp duty rates are complicated at the moment so delve a little deeper to find out exactly what you would pay.

On March 31, the current Help-to-Buy scheme, which offers people extra money up-front if they buy a new-build home with just a 5% deposit, is ending. A new help-to-buy scheme has gone live for first-time buyers who can borrow from 5% to 20% (40% in London) of the full purchase price of a new-build home. The current shared Ownership is also changing and the minimum share a buyer can purchase in a home is moving from 25% to 10% at the end of March.

Increasing bills in the New Tax Year

More than half of local authorities have set out plans to increase council tax by the maximum 5% this April. That will mean increases of between £50 and £100 for band D properties, which paid an average of £568 in 1993 compared to £1,817 this year. Not many people know that you can get a 25% discount if you live alone, are living with a full-time student or living with someone with severe mental impairment such as dementia.

Energy bills are due to rise from April because the energy price cap level will rise to £96. Get on to a price comparison site and see if you can find a cheaper tariff, perhaps with a fixed deal.

The cost of the TV licence fee will rise from April also, from £157.50 to £159. Did you know that if you are blind you could be entitled to a 50% reduction and care home residents can also qualify for a discount of £7.50. Take note that people over the age of 75 must also now pay for a TV Licence. There are also some small increases to NHS prescription charges.

When you combine this with other areas of increasing costs it all adds up and now could be a good time to look at outgoings and revising budgets. If you want to find out more about starting good money habits take a look at our Guide to Managing money in your 20s and 30s.

What’s changing for drivers?

  • Car Tax: In the Spring Budget The Chancellor announced fuel duty would be frozen for another year, it will remain at 57.95p per litre for the tenth year. But make sure you budget for changes to Vehicle Excise Duty, commonly known as road tax, which will continue to rise for some cars. The amount you pay will still depend on CO2 emissions. Cars that emit between 76g and 150g per kilometre of CO2 will see their VED rates rise by £5 to £220. The more CO2 a car emits per kilometre, the greater the increase in road tax for 2021. The biggest increase is an extra £70 for cars that emit more than 255g per kilometre of CO2. If you want to find out more see the full breakdown of car tax changes.
  • Clean Air Zones: Also take in to account new Clean Air Zones which aim to improve air quality. If your vehicle exceeds emission standards you may have to pay a charge when driving it in a Clean Air Zone. Recently introduced in Bath, there are 4 types of zones, Birmingham will launch a Class D Clean Air Zone on 1 June 2021 and more cities will follow this year and in 2022.
  • Lessons: Driving lessons and theory tests can resume from 12th April, according to the government roadmap. From 22nd April people can start taking car driving tests again. This of course is all subject to whether the country reaches its COVID related targets.
  • Electric car drivers: From April the benefit-in-kind rates are being reintroduced for people driving electric cars. Drivers will have to pay a 1% charge, based on income rates and vehicle value.

The state pension is increasing

Known as the triple lock system, each year state pensions increase, either in line with earnings, the consumer price index (CPI) or 2.5%, whichever is highest. Inflation was 0.5% in September and earnings have remained low throughout 2020 so from April, the state pension will rise 2.5%, bringing it to a total of £179.60 a week for people with full credits on the new-style pension. This means retirees will get up to an extra £228.80 a year. Those on the old full state pension, will get an extra £3.40 a week, increasing the weekly pension to £137.65, which results in an extra £176.80 over the year.

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Tax, earnings and benefits

New minimum wage rates come into force in England on 1st April with the National Living Wage rising to £8.91 an hour. The NMW will also now apply to people who are 23 and 24 years old instead of for people over the age of 25. This means 23 and 24-year-olds who are currently on £8.20 an hour will see their pay jump by 71p to £8.91 next month. Maternity, paternity, adoption and shared parental pay is increasing to £151.97 a week. Statutory Sick Pay (SSP) rates are also rising to £96.35 a week.

The furlough scheme will be extended until the end of September 2021. Employers will be asked to contribute more in July (an additional 10%) and August (20% more) until the scheme is phased out. Self-employment income support is also continued until the end of April, with a fourth grant to cover 80% of average trading profits.

We recently produced a full breakdown of the 2021/22 tax tables listing all changes. To summarise some key changes for April 6th:

  • Income tax: personal allowance rising to £12,570 and starting point for 40% tax payers jumps to £50,000.
  • Working tax credits: people will no longer get a weekly £20, instead they will receive a lump sum upfront of £500.
  • Child benefit: rising by 10p/week to £21.15 for the first child and by 5p/week to £14 for subsequent children from April 12.
  • Universal credit: if you are single and under 25 years the standard allowance will rise from £256.05 to £257.33. If you are single and over 25 years it will rise from £323.22 to £324.84. Joint claimants under 25 increases from £401.92 to £403.93 and if you are caring for a severely disabled person for at least 35 hours a week you will get a rise from £162.92 to £163.73.
  • Housing benefit: rising from £58.90 to £59.20 for under 25s and from £74.35 to £74.70 for 25s and over.
  • Disability Living Allowance: the highest amount you can claim is rising from £89.15 to £89.60. The middle amount is rising from £59.70 to £60.00 and the lowest from £23.60 to £23.70.
  • Employment and Support Allowance: for under 25s rising from £58.90 to £59.20. People who are 25 years and over will get £74.70, a rise from £74.35
  • Pension credit: are rising from £173.75 to £177.10. Are you missing out on pension credit?

According to Age UK around 1 in 7 who should be claiming Housing Benefit to help pay their rent are missing out. Almost £3 billion of benefits aimed at older people goes unclaimed a year and over a million pensioner households are missing out on Pension Credit. It is easy to check with the DWP if your family members could be utilising these benefits.

Recommended financial planning steps for the new tax year

Everyone is unique, their personal circumstances are different and what they hope to achieve out of life is personal to each individual. There isn’t one financial planning strategy that works for everyone because your situation and the mixture of your different income steams, savings, debts, outgoings, retirement pots and investments is unique to you. When it comes to managing your finances you can choose to do it yourself, choose to work with a financial adviser or choose to do nothing at all. If you have made a decision to manage your own finances you need to look at the tax year from different angles and not just plan for this year but for the future as a whole. Thinking longer term prevents you from reacting in a ‘knee jerk’ manner to big changes, like some people who sold shares in April 2020 and crystallised their losses instead of keeping their money invested for when the markets recovered.

Tips for people who want to manager their own finances

  1. Get your head around your income vs actual expenditure
  2. Devise a list of areas of expenditure you could get better value from.
  3. Put together your own budget.
  4. Understand the rules on tax, which can be found in our tax tables. This will help you understand what your earnings will be, how much tax you will pay and how to build your investments and retirement tax efficiently
  5. Do a personal financial review every year.
  6. Take an interest in the Budget, released once a year by the Chancellor of the Exchequer. It’ll clue you in on what to expect for the future.
  7. Identify your objectives so you can plan for big costs like a new car or holiday ahead of time.
  8. Decide on a savings strategy and perhaps consider investing if you are keeping cash in the bank for too long
  9. Make sure any debt is structured, accounting for the lowest interest rate, and balance that against any savings you have.
  10. Check your will, even if you don’t feel anything has changed, check nothing has changed to inheritance tax laws for example.
  11. Get advice on how to mitigate tax on your estate
  12. Put long-term care provisions in place so that you aren’t forced to sell your home when you need care or get your children to pay for it
  13. Work out how much income you want for retirement and start saving. It is never too early!
  14. For those who have kids, work out a savings plan for children and grandchildren
  15. Find a way to be accountable for your decisions and make sure you stick to the plan

 

DIY financial advice or seek professional help?

Some people really enjoy managing their own finances and this has born a generation of DIY investors. If you are in this camp feel free to take a look at our free financial planning guides.  However, if you are worried you don’t have the knowledge or experience to manage your own money or indeed doing all of this just looks like a part-time job in itself, then you can start to consider using a financial adviser. There are also a lot of hidden benefits to financial advice a lot of people don’t know about.

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