April: the beginning of a new tax year. Naturally, lots of changes tend to come to pensions, tax and the overall economy at this time. Some of the highlights for 2018 include:
- Some good news for pensioners and students.
- Increased pension contributions for UK workers.
- More personal allowance for income tax.
And more.
So what are some of the key changes announced by the UK government, and how are they likely to affect you?
#1 Inheritance Tax
If you own a home and your estate might pass on this year, then from April you could be affected by some changes to the rules.
The main IHT exemption will remain the same (i.e. no tax on your estate up to £325,000). The additional rate, however, is going to rise from £100,000 to £125,000.
This means you could potentially save more on your tax bill.
#2 Pension Changes
One of the big changes to pensions concerns auto-enrolment (AR). To quickly recap, AR is where your employer automatically signs you up into a company pension scheme, and you both contribute towards your pension pot.
From April 2018, you will be obliged to pay 3% of your salary into your pot. This triples the previous mandatory contribution of 1%. Your employer will also be required to give a minimum contribution of 2%.
Your lifetime allowance (tax-free limit on your pension pot) is also going to increase from £1m to £1,030,000.
The state pension is also going up 3% as well, in line with the Consumer Prices Index.
#3 Income Tax
Last financial year (2018-2019), you only paid tax on earnings above £11,500. From April 2018, this threshold will increase to £11,850, making basic-rate taxpayers slightly better off.
Workers will also now enter the higher-rate tax bracket (40%) on earnings over £46,350, making it a rise on the previous £45,000. Bear in mind that residents in Scotland will face different rules.
Bear in mind, that the thresholds are broadly following the rise in inflation. So in terms of real purchasing power, the changes will not leave most people much better off or worse.
#4 State Pension Age
As of December 2018, the state pension age will rise from 65 to 66. If you were born on December 6th 1953, then this change will affect you first.
If you were born the day before, then you can retire on December 5th 2018. If you land on the 6th December 1953 for your birthday, however, then for you the date will be March 6th 2019.
The worst affected will be those born on October 6th 1954, who will have to wait one year extra.
#5 Housing Benefit / Universal Credit Crossover
From April, the government will be streamlining the process to make it simpler for claimants to have their rent paid straight to their landlord.
Moreover, housing benefits will continue being paid for the first 14 days of a Universal Credit.
#6 Support for Mortgage Interest: Scrapped
From April, SMI benefit will be changing quite dramatically.
Those homeowners who fall on hard times have previously been able to look to SMI as a free benefit, to help them keep up their mortgage payments.
However, this free benefits is now set to become a loan. This means that when the house is sold, the amount of SMI drawn upon will be due to be repaid. Alternatively, the SMI amount will need to be given back when the benefit ends.
Interest will be put on the amount of SMI borrowed, with an interest rate of 2.61% expected as of June 2018.
SMI will also be paid monthly in arrears, to bring it in sync with other UC housing benefits.