Terrible April, horrible April, horrible April – whatever you want to call this month, a month that normally brings warmer weather, sunnier times and Easter fun, it’s clear that the tough financial times are starting to bite.
Many household bills are going up this month. The energy cap has skyrocketed, meaning prices are skyrocketing if you don’t have a steady business.
Council tax bills are up, other major utilities linked to the RPI are up and inflation is walking away. Fuel prices, food prices, clothing prices – it’s a battle out there.
Bruised: Many have seen the bills rise – April brings an NI hike that is temporary for some and a meager rise in the state pension relative to inflation
Not everyone will feel the struggle in the same way. The pandemic suggested that many had started to save more, thanks to more disposable income, although this is likely to be quickly wiped out if the latest Bank of England statistics apply.
There are likely new changes this week in one form or another that will affect you now or in the future.
1. New no-fault divorces
Insiders reveal that many couples have been holding off on starting divorce proceedings while awaiting the new no-fault divorce option that was introduced on April 6.
Couples can get a divorce within six months of the initial application, even if one partner objects, and the process will be mostly online — including the delivery of divorce papers by email. It is the biggest upheaval in 50 years.
Financial settlements continue to be dealt with in a separate and parallel process, which may continue even after the divorce is final.
It should mean that couples can break up without breaking the bank. But you shouldn’t rule out professional help if you have children together, a pension, a property, or significant savings or investments. Hurry could lead to financial failure.
You can read our full guide here: How do quick no-fault divorces affect couples trying to split their finances?
2. New tax year
The new tax year started on April 6th. Some early birds and savers will already take advantage of the 2022/23 financial year, which brings with it a new limit of £20,000.
For the majority, the thought of having money left over, let alone £20,000 will be alien. Others will try to take advantage of it right away – which is what I mean by not everyone feeling the fight the same way.
For savers, the real battle is protecting their money from devastating inflation. Three rate hikes have come with some better savings rates – but the gap between those and CPI inflation of 6.2 percent is wide.
Also, the gap between tax-free savings accounts and regular accounts is quite large.
Nonetheless, here are our picks of the best cash isas – including a Best Buy 0.92 percent easy-access from Shawbrook Bank and a 1.65 percent 2-year fix from Aldermore.
If you are looking for a new stock isa account, here is a roundup of the best platforms.
There’s a new Lifetime Isa Limit of £4,000 for many to save up to buy a new home – picking the best is here.
Meanwhile, if you’re saving for your child, a new limit of £9,000 could go into a Junior Isa, for which interest rates are actually the best, including 2.35 per cent from the Coventry Building Society – or you might take a stock option in Consider stock version.
3. Social Security up…then down (for some)
Yesterday marked the increase in social security contributions by 1.25 percentage points.
A controversial move, not least because it goes against a manifesto promise by the Prime Minister it will hit workers in different ways depending on how much you earn.
Confusingly we raised it this month, but then the rate will fall with a rising NI threshold in July – you can hear editor Simon Lambert and I discuss this on the podcast recently.
The crux of whether or not you’ll be paying more in July is around £50,000 a year.
Without getting too political, the money is to be earmarked for social welfare, although initially it will be used for the NHS to reduce waiting times.
Some will accept a higher burden to fund an area that needs it, especially since after July it will be the higher earners who pay more – but with the cost-of-living crisis biting all earners in different ways, she’s not being given the best of press by Chancellor Rishi Sunak, whose popularity ratings have plummeted.
Pensioner pain: The triple lock became a double lock – and now state pensions are rising much more slowly than inflation
4. Median state pension increase
Speaking of controversial, public pension increases come into effect this week – but the triple lockdown has been lifted.
Under the legendary triple ban, the statutory pension should increase every year by the maximum of inflation, average income growth or 2.5 percent.
But the government removed the income element of this year’s increase because wage growth was temporarily skewed to more than 8 percent due to the pandemic.
The House of Commons voted to move to a “double lockdown” and increase the state pension next year through inflation rather than higher wage growth. When that was determined, it was 3.1 percent. That looks incredibly mean now at a time when CPI is 6.2 percent and energy bills have skyrocketed.
I’ve argued a couple of times on the This is Money podcast that a 5 percent raise is the fairest solution — a middle ground between 3.1 percent and 8 percent, and I still stand by that.
On the one hand, I think people understood that 8 percent was high, but 3.1 percent wouldn’t do it since inflation was already rising late last year.
As a result, the basic state pension has now increased by £4.25 to £141.85 a week, or £7,380 a year. The full flat rate increases by £5.55 to £185.15 per week or £9,630 per year.
What will happen at the end of this year is unclear. But with inflation expected to rise above 8 percent, the chancellor is likely to face a similar headache.
5. Dividend tax hit
After all, investors are paying £1.3bn more in tax this financial year – the government cracked the whip on entrepreneurs and savers by raising the dividend tax rate.
The tax increase of 1.25 percentage points increases the tax rates to 8.75 percent for taxpayers with a basic tax rate, 33.75 percent for taxpayers with a higher tax rate and 39.35 percent for taxpayers with a supplementary tax rate.
Until it was cut to £2,000 in 2018, the tax-free dividend allowance was a far more generous £5,000 a year.
The government’s own estimates show that 40 percent of those with non-ISA dividend income will experience a tax increase, and 70 percent of that will be paid for by higher and additional taxpayers.
The tax hike will most likely affect those investors who own shares outside of an Isa or annuity, or those who have historical assets that never made them invest in an Isa.
Many may have been prompted to act by maxing out their Isa allowance for last year and already maxing out the new one – but now generous Isa limits of £20,000 12 years ago were much slimmer than £7,200 12 years ago and only made so high in year 2017.
Some may argue that this is a “rich man’s problem.” While I can understand that logic, I see it as yet another punishment for people who have potentially worked hard to build wealth and invested properly.
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