Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
What changes will your finances face next year?
As the new year fast approaches, savers and investors should be aware of the key dates and events happening for their finances in 2019.
Here we look at the big things to look out for – and whether they will make you wealthier or poorer.
END OF HELP-TO-BUY ISA
From 30 November 2019 no-one can open a new Help to Buy ISA account. However, if you already have one you can keep the account open and carry on paying into it for another decade, and you have until 1 December 2030 to claim your 25% Government bonus.
Alternatively you can transfer the account into a Lifetime ISA.
The Lifetime ISA has a number of benefits, including a higher limit of £450,000 on the value of the property you can buy, a bigger potential Government bonus each year of £1,000 and the ability to save lump sums rather than just monthly.
INCREASE IN RESIDENCE NIL- RATE BAND
While the tax-free amount for inheritance tax purposes has been stuck at £325,000 since 2009, the new residence nil-rate band gives a boost to anyone passing on their home.
From April 2017 those with a residential property were given an extra £100,000 inheritance-tax-free allowance, increasing to £125,000 this year and from 2019 this will increase again to £150,000. However, there is tricky small print with this allowance, as the property must be left to direct descendants, so a child, grandchild, or their spouse.
Anyone with an estate valued at more than £2m will also start to lose the allowance by £1 for every £2 they are over this limit.
INCREASE IN INCOME TAX ALLOWANCES
The Government says that 32m people will effectively get a pay rise in April, when the amount everyone can earn before paying income tax is increased from £11,850 to £12,500, while the amount you earn before hitting the higher-rate tax band will rise from £46,350 to £50,000.
The devil is in the detail as those benefiting from the higher-rate band increase will be hit by a higher National Insurance bill.
Employees pay 12% National Insurance up to an upper earnings limit, after which it is reduced to 2%.
This upper earnings limit is linked to the higher-rate tax band, meaning employees will now pay the 12% rate on their earnings between £46,350 to £50,000 – rather than the 2% previously. This move wipes out a big chunk of the tax gain from the income tax breaks.
The main ISA annual allowance will stay at £20,000 this year, but from April the amount people can put into a Junior ISA will increase to £4,368.
MORTGAGE INTEREST RELIEF CUT FOR LANDLORDS
April will see the continuation of the tax crackdown on landlords, when the tax breaks available for buy-to-let investors are reduced again.
Since last year the Government has been gradually removing the amount of mortgage interest landlords can use to offset against their profit.
Instead landlords will get a basic rate tax relief reduction, at 20%. From April next year landlords can only offset 25% of their mortgage costs against their profit.
NS&I SLASHES RATE ON INDEX-LINKED SAVINGS CERTIFICATES
From May next year NS&I will cut the rate paid to the more than 500,000 customers who have Index-linked Savings Certificates.
NS&I is switching its benchmark index from the retail prices index to the consumer prices index – which is around 1 percentage point lower.
At current inflation, someone with a five-year Index-linked Savings Certificate will miss out on about £50 on a £1,000 investment, and someone who had £50,000 invested over five years will lose out on £450.
The savings accounts aren’t on sale anymore, but existing holders can renew their certificates for two, three or five years when they come up for renewal.
– Automatic enrolment contributions hike
The Government’s flagship auto-enrolment reform programme will hit another milestone next year, with the total minimum contributions into the pension set to rise from 5% to 8% of qualifying earnings in April.
The minimum contribution will be 3% from employers and 5% from staff. This means someone earning around £27,000 and paying in the minimum will see their pension contribution rise from around £500 this year to more than £850 in the 2019/20 tax year.
– Flat-rate state pension rising to £168.60 a week…
Anyone in receipt of the state pension continues to benefit from the triple-lock, which pegs the payment to the highest of average earnings, CPI inflation or 2.5%.
With average earnings being the highest figure in the calculations used for next year, pensioners will enjoy a 2.6% increase in their state pension income from April 2019.
That will bring the basic state pension up to £129.20 per week, while the flat-rate state pension – introduced for those retiring from April 2016 onwards – will rise to £168.20.
– …but state pension age increasing to 66
While the Government gives to older people through the state pension triple-lock, it takes away via increases in the state pension age. From December this year and running through 2019 the state pension age will gradually increase from 65, eventually hitting 66 by October 2020. The state pension age is then set to increase to 67 in 2028 and 68 by 2037.
– Lifetime allowance increase to £1,055,000
The pension lifetime allowance is set for a small uplift next year too, rising from £1,030,000 to £1,055,000 from April 2019 in line with CPI inflation. After another year when it appeared retirement saving incentives were under threat from the Treasury, savers will be relieved this is the only notable pension tax relief change they have to navigate.