5 important financial changes to watch out for in 2018

As with any new year, there are several financial changes about to happen in 2018 which are likely to impact on your monthly budget and long-term saving objectives. Let’s have a look at five of the most important and what they’re likely to mean for you over the months ahead.

1. The Lifetime Allowance increases

The Lifetime Allowance limits how big your pension pot can become without incurring severe taxation on your savings. It’s presently set at £1 million, but will go up to £1,030,000 in April this year—the first increase since 2010—giving those who are near the existing maximum a little extra scope to save.

2. The State Pension will rise

The triple lock means that the State Pension rises in line with either earnings, inflation or 2.5%, whichever is highest. As inflation is currently at around 3%, retirees will see their State Pension reach this level in order to help meet the cost of living. However, if you don’t need your State Pension because you’re still in work or you have other pensions, it pays not to claim it. Those on the basic State Pension receive an additional 1% for every five weeks they don’t claim it, giving a 10.4% uplift for each year its left unclaimed. Those on the new State Pension will get 1% for every nine weeks, or 5.8% for every year they don’t claim.

3. The Dividend Allowance falls

A substantial cut in the dividend allowance means the amount of dividend income that can be earned tax-free will be reduced from the current limit of £5,000 to just £2,000. A basic rate taxpayer receiving £5,000 in dividends will now pay £225 in tax, a higher rate taxpayer will pay £975 and an additional rate taxpayer will receive a tax bill of £1,143. The best way to evade incurring this further tax is by placing your investments into a tax-efficient wrapper such as an Individual Savings Account (ISA).

4. Inherited ISA Allowance goes up

Presently, a spouse can inherit the ISA holdings from a deceased partner tax-free, but this doesn’t extend to any interest made, which can cause issues when the administration of an estate takes a long time. From April 2018, however, the deceased person’s ISA will become a ‘continuing ISA’, which means that no additional deposits can be made but any holdings, including growth, will not incur any tax when the estate is closed formally.

5. Automatic enrolment contributions are set to increase

If you’re enrolled in a workplace pension scheme and making the minimum contribution, that will be 0.8% of your salary at present. However, from April 2018 the figure will treble to 2.4%. To dodge the rise you’d have to opt out of the pension scheme, but it’s crucial not to put your future financial security in jeopardy for a little extra spending money now.

Workplace pensions are regulated by The Pensions Regulator. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

If you’d like to contact us about this or any other matter, please feel free to give us a call today on 01789 263888 or email hello@charterswealth.co.uk.