Awful April, Appalling April, Atrocious April – however you want to label this month, one that usually brings warmer weather, sunnier times and Easter fun, it’s clear that tough financial times are starting to bite.
This month marks many household bills rising. The energy cap has rocketed which means if you’re not on a fixed deal, prices are ballooning.
Council tax bills are up, other key utilities linked to RPI are up and inflation is running away. Fuel prices, food prices, clothes prices – it’s a struggle out there.
Squeezed: Many have seen bills rise – April brings with it an NI hike which is temporary for some and a meagre rise in state pension when compared to inflation
Not everyone will feel the struggle the same way. The indication was in the pandemic that many had started to save harder thanks to more disposable income, although that seems to be quickly coming undone if latest Bank of England statistics are to go by.
The likelihood is, in one shape or another, there are new changes that have come in this week that will affect you either now or in the future.
1. New ‘no fault’ divorces
Evidence from insiders is that many couples have held off starting divorce proceedings as they waited for the new ‘no fault’ divorce option, which came in on 6 April.
Couples will be able to get divorced within six months of first applying even if one partner is opposed, and the process will be largely online – including the serving of divorce papers by email. It’s the biggest shake-up in 50 years.
Financial settlements will still be dealt with in a separate and parallel process which can continue after the divorce is final.
It should mean that couples can break up without breaking the bank. But you shouldn’t rule out getting help from professionals if you have children together, pensions, a property, or significant savings or investments. Haste could result in financial mistakes.
You can read our full guide here: How will quickie ‘no fault’ divorces affect couples trying to split finances?
2. Fresh tax-year
The new tax year started on 6 April. Some early-bird investors and savers will already be taking advantage of the 2022/23 financial year, which brings with it a new £20,000 limit.
For the majority, the thought of having money spare, let alone £20,000 will be an alien concept. For others, they will be looking to take advantage right away – which is what I mean about not everyone feeling the struggle in the same way.
For savers, the real battle is protecting their cash from ravaging inflation. With three base rate rises has come some better savings rates – but the gap between those and 6.2 per cent consumer price index inflation is stark.
The gap between tax-free savings accounts and regular accounts is also fairly wide.
Nevertheless, here are our pick of the best cash Isas – including a best buy 0.92 per cent easy-access from Shawbrook Bank and a 1.65 per cent two year fix from Aldermore.
If you’re looking for a new stocks and shares Isa account, here is a round-up of the best platforms.
There is a fresh £4,000 Lifetime Isa limit, which many are saving into to buy a new home – the pick of the best are here.
Meanwhile, if you’re saving for your child, a new £9,000 limit could go into a Junior Isa, for which the rates are actually the best around, including 2.35 per cent from Coventry Building Society – or you may be considering a stocks and shares version.
3. National Insurance up… then down (for some)
Yesterday marks the 1.25 percentage point increase in National Insurance contributions.
A controversial move, not least because it breaks a manifesto pledge from the Prime Minister, it will hit workers in different ways, depending on how much you earn.
Confusingly, we have it being hiked this month, but then with a rising NI threshold coming in July, the rate will fall – you can listen to editor Simon Lambert and I discuss this on the podcast recently.
The biting point as to whether or not you’ll be paying more come July is around £50,000 a year.
Without getting too far deep into the political aspect of this, the money is meant to be ring-fenced for social care, although at the beginning it will be used for the NHS to bring down waiting times.
Some will accept a higher burden to help fund an area that needs it, especially as after July, it will be higher earners that pay more – but with the cost of living crisis biting all earners in different ways, it’s not given the best press to Chancellor Rishi Sunak who has seen his popularity ratings plummet.
Pensioner pain: The triple lock was made into a double lock – and now state pension is rising far slower than inflation
4. Mean state pension rise
Talking of controversial, rises in state pension take effect this week – but the triple lock was binned.
Under the fabled triple lock, the state pension is meant to increase every year by the highest of price inflation, average earnings growth or 2.5 per cent.
But the Government scrapped the earnings element from this year’s rise, because wage growth was temporarily distorted to more than 8 per cent due to the pandemic.
The House of Commons voted to move to a ‘double lock’, and increase the state pension by inflation rather than the higher wage growth figure next year. When that was set, it was 3.1 per cent. That now looks incredibly mean at a time when CPI is 6.2 per cent and energy bills have soared.
I argued my case a few times on the This is Money podcast that a 5 per cent rise was the fairest solution – a halfway house between 3.1 per cent and 8 per cent, and I still stick by that.
On one hand, I believe people understood that 8 per cent was high, but 3.1 per cent wasn’t going to cut it with inflation already heading higher at the tail-end of last year.
As a result, the basic state pension has now risen £4.25 to £141.85 per week, or £7,380 a year. The full flat rate will rise by £5.55 to £185.15 per week, or £9,630 a year.
What happens at the end of this year is anyone’s guess. But with inflation expected to soar beyond 8 per cent, the Chancellor is likely to face a similar headache.
5. Dividend tax hit
Lastly, investors will pay £1.3billion more in tax this financial year – the Government has cracked the whip on business owners and savers by hiking the dividend tax rate.
The tax hike of 1.25 percentage points see rates rise to 8.75 per cent for basic-rate taxpayers, 33.75 per cent for higher rate taxpayers and 39.35 per cent for additional rate payers.
Until it was slashed to £2,000 in 2018, the tax-free dividend allowance was a far more generous £5,000 per year.
The Government’s own estimates show that 40 per cent of people with dividend income outside an Isa will see a tax increase, and 70 per cent of that will be paid for by higher and additional-rate payers.
The tax hike is most likely to affect those investors who own shares outside an Isa or pension, or those that have historical wealth that they never got around to putting into an Isa.
Many may have been prompted into action by maxing out their Isa allowance for last year, and maxing out the new one already – but, now generous Isa limits of £20,000 were a far slimmer £7,200 12 years ago, and were only made that high in 2017.
Some may argue that this is a ‘rich person problem’. While I can understand that logic, I see it as yet another penalty for people who have potentially worked hard to build up wealth and have invested the right way.
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