As we head into 2018, with a new financial year a few months away, the government is preparing to introduce several changes. These will come into effect in April, and it is likely that you will be affected by at least one of them. Being prepared is the key to making the most of the changes and deadlines that are approaching.

To ensure that you are informed about the upcoming changes to allowances, savings and pensions, here are the seven biggest things you need to know about.

 1.    Higher Lifetime Allowance

As inflation hit 3% in the second half of 2017, Philip Hammond announced in the Autumn Budget that the Lifetime Allowance would rise accordingly, from £1 million to £1.03 million.

The Lifetime Allowance dictates how much you can hold in your pension before tax charges are potentially applied. For example;

• 25% lifetime allowance charge applies to funds in excess of the Lifetime Allowance if they are placed in drawdown or used for annuity purchase
• 55% Lifetime Allowance charge applies to excess funds if they are withdrawn as lump sums

 2.    Increased Personal Allowance

The Personal Allowance is the income you can receive each year before starting to pay Income Tax. It’s currently £11,500 but will be increasing to £11,850 in April. That means that, during the financial year 2018/19, you can benefit from an extra £350 tax-free income.

The government has previously announced that they are aiming to raise personal allowance to £12,500 by 2020.

 3.    Dividend Allowance decrease

Although the change was announced in early 2017, the dividend tax-free allowance will fall from £5,000 to £2,000 at the beginning of the next tax year. This means that business owners and contractors who work for a limited company structure will pay tax on annual dividends of more than £2,000.

 4.    Auto-enrolment contributions increase

Automatic enrolment for all eligible employees into workplace pensions reaches its final stages for existing employers this year. In addition, the minimum contributions made by both employees and employers will rise.

Currently, both parties are required to contribute 1% of qualified earnings. However, from April, this will increase to a minimum of  2% from the employer and 3% from the employee.  And will rise once again in April 2019 to 3% for employers and 8% in total.

 5.    Help to Buy ISA / Lifetime ISA transfer deadline

Any deposits made into a Help to Buy ISA before April 2017 can be transferred into a Lifetime ISA (LISA), without impacting the annual Lifetime ISA allowance until 5^th April 2018. This could give you a double bonus. You can put twice as much into your LISA this year, and still receive the 25% bonus when you buy a house or retire.

 6.    Basic State Pension increase

Each year, the Basic State Pension increases in line with whichever is higher out of:

• The rate of Inflation
• Average Earnings growth
• 2.5%

This is known as the triple lock system.

In October 2017, inflation reached 3% and set the bar for the State Pension’s 2018 rise.

If you already receive a State Pension, this is good news. Those people entitled to a full basic State Pension will now receive an extra £4.80 per week.

 7.    Higher Income Tax rates in Scotland.

In the 2017/18 tax year, Scottish Income Tax rates for earned income are:

• Up to £11,500: Tax-free Personal Allowance
• £11,501 to £43,000: 20%
• £43,001 to £150,000: 40%
• over £150,000: 45%

However, from April 2018, proposals have been made to change them to:

• Up to £11,850: Tax-free Personal Allowance
• £11,850-£13,850: 19%
• £13,850-£24,000: 20%
• £24,000-£44,273: 21%
• £44,273-£150,000: 41%
• Above £150,000: 46%

This is quite a difference which will affect Scottish taxpayers at all income levels.

Making the most of the 2018/19 financial year

A lot of changes are happening at the beginning of the new financial year. So, make sure that you are informed and able to maintain your financial security when they come into effect. The three main ways to stay on top of your finances are:

1. Staying informed
2. Knowing how the changes affect you
3. Seeking advice

For more information about how the new financial year could affect you, contact us.