Eleven major changes to your personal finances in 2022 kicking in from TOMORROW

TOMORROW big changes in personal finance will begin, with 2022 set to be an important year for your pocket.

Energy bills, wages, and pensions will undergo major changes next year – and you can expect to be hit by tax hikes and rising prices in stores.

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It helps to be aware of the changes that will impact you as they could affect your budget and you don’t want to be caught off guard.

You also need to be aware of positive changes to make sure you get everything you are entitled to.

These are the dates you need in your calendar so that you are on top of all the upcoming financial changes starting tomorrow.

National living wage

Workers with the lowest statutory rate of pay will see their wages rise in April when the national living wage increases.

It will drop to £ 9.50 per hour for over 23 seconds from the current rate of £ 8.91.

This means that someone aged 23 or over at minimum wage and working 37.5 hours per week will see their weekly wage drop from £ 334.13 to £ 356.25.

This could mean an annual salary increase of over £ 1,000, from £ 17,374.76 to £ 18,525.

Other age groups will see a similar increase in their wages next year, although the rate for those under 23 is called the National Living Wage.

Workers over 21 will receive £ 9.18, up from £ 8.36, and those between 18 and 20 will see their hourly rate drop from £ 6.56 to £ 6.83.

Under-18s will be paid £ 4.81, up from £ 4.62, and apprentices will also get £ 4.81, up from £ 4.30 per hour.

Energy price cap

Energy prices have skyrocketed this year and it looks like bills are set to rise further in 2022.

Consumers are expected to be prepared to pay hundreds of extra pounds from April 2022 as the energy price cap is raised.

Experts are divided on how much could rise, but estimates range from £ 150 to £ 400.

The latter would take the average annual costs for someone on a default rate of £ 1,277 to £ 1,677.

The amount will be announced in February before going into effect from April.

“The energy price cap in April is based on ongoing price increases, and as energy prices have climbed much higher, there is no doubt that households are going to see a further increase,” according to Laura Suter, personal finance manager at AJ Bell.

She added: “Some estimate that the increase will be around £ 400, which would drop the average annual costs for someone on a default tariff from the current £ 1,277 to £ 1,677 – and it will be again higher for those who use prepaid meters. “

Housing tax rate

The average UK household has seen their municipal tax bill rise by £ 7 per month in 2021 – and it will rise further.

It is estimated that they will increase by 6% next year.

This is because the councils are looking for ways to raise more money due to the impact of welfare reforms and the pandemic.

AJ Bell estimates the annual amount could reach £ 1,951 for an average D-Band property, up from £ 1,898 this year.

However, it will vary widely across the country as the rate is set by your local authority.

“Anyone who is having a hard time paying should ask for help, because there are a lot of supports available for low-income people,” Suter said.

Roaming charges are back

Almost two years after Brexit, roaming charges in EU countries are expected to return.

The first affected data users are Vodafone, EE and Three customers.

But you can switch to companies that haven’t reintroduced roaming charges, including Tesco Mobile, Virgin Mobile and Plusnet, according to Money Saving Expert.

Rail tariffs

The cost of travel on the trails generally increases by the inflation rate of the July RPI, which was 3.8% in 2021.

This should also take place next year – announced the Ministry of Transport.

A season ticket between Oxford and London – including a London transport card – will cost almost £ 6,700 a year from March.

That’s £ 245 more than the current price.

In the north, the cost of journeys between Macclesfield and Manchester will increase from £ 84 to £ 2,284.

Many people work from home or have made the switch to flexible working permanently, which means they may not need a full subscription.

But if you know you’ll need it next year, you can buy it before the prices go up in March to keep your costs down.

Interest rate

The Bank of England took the surprise decision to hike interest rates just a week before Christmas.

They rose to 0.25%, a slight increase from the previous record of 0.1%.

What action you need to take now depends on your current financial situation.

Credit card, mortgage and overdraft fees are expected to increase by several hundred per year.

Meanwhile, savers are expected to earn – but only a small amount so far.

The Bank of England is set to hike rates again in 2022, so keep an eye out for more changes.

Dividend tax rate

You can earn a dividend if you own shares in a business or if you own your own business.

The government announced in September that the dividend tax rate would increase.

Directors of public limited companies usually pay themselves a small salary up to the national insurance threshold, and then receive dividends from the company’s profits.

They benefit because the dividend tax is lower than the income tax they would pay on higher wages.

Many freelancers, small business owners and entrepreneurs pay themselves in the form of dividends.

You don’t pay tax on dividend income that falls under your personal allowance, which is the amount you can earn each year without paying tax.

You also get a dividend allowance each year and only pay tax on income above that amount.

Dividend tax rates for next year increase:

• Taxpayers at the base rate go from 7.5% to 8.75%.
• Higher rate taxpayers go from 32.5% to 33.75%.
• Taxpayers at the additional rate go from 38.1% to 39.35%.

For example, someone who owns their own business and pays their salary of £ 50,000 entirely in dividends, would have a tax bill of £ 3,100.13 in the next fiscal year.

This is because the first £ 12,570 of income falls under personal allowance and is therefore taxed at 0%.

The following £ 2,000 of dividend income is exempt from tax via the dividend allowance. The remaining £ 35,430 falls within the base rate tax bracket.

If they had earned that much dividend income in 2021/2022, they would be taxed at 7.5%, leaving them with a tax bill of £ 2,657.25.

Frozen allowances

Income thresholds for some allowances have been frozen, meaning Britons could have to pay higher taxes.

The allowances are:

• Personal allowance at £ 12,570 and income tax thresholds frozen
• Lifetime retirement allowance of £ 1,073,100
• CGT allowance at £ 12,300
• ISA allowance at £ 20,000
• JISA at £ 9,000
• The IHT threshold and zero rate band for primary residence remain the same at £ 325,000 and £ 175,000
• Dividend allocation remains the same at £ 2,000

“The freeze on tax breaks, combined with inflationary pressure on wages, will produce a tax drag on steroids,” said Laura at AJ Bell.

“This is good news for the Chancellor, who can expect to withdraw more money as wages rise, but of course it is a direct transfer from the pockets of workers.

“No one in their right mind will refuse a raise in pay just to avoid taxes, but workers can reduce their taxes with a little financial planning, especially by using pension contributions and distributing assets between spouses in order. to mitigate tax increases. “

UK inflation rate

UK inflation is now at 5.1%, its highest level in ten years.

Unfortunately for consumers, “almost everyone agrees that things are going to get worse before they get better,” says Suter.

Inflation is a measure of how the price of goods and services changes over time.

It’s been pushed up by rising energy prices – and an increase in hospitality VAT to 20% will likely push it up again.

State pension

Retirees will see their retirement pay increases next year, although changes to the triple lockdown mean they will be lower than expected.

The ‘old’ basic state pension will increase by £ 4.25 per week, from £ 137.60 per week to £ 141.85 per week

The ‘new’ flat-rate state pension will increase by £ 5.55 per week from £ 179.60 per week to £ 185.15 per week.

If the salary link had been maintained, retirees would have benefited from an exceptional 8.3% increase in their income.

This would have pushed the full flat-rate state pension to £ 194.50 per week or £ 10,114 per year.

Instead, the benefit will increase from £ 5.55 to £ 185.15 per week or £ 9,627.80 per year.

In other words, the decision will ‘cost’ recipients of the state full pension flat-rate £ 486.20 in state pension income in 2022/23.

“Decision to remove the income element from the triple state pension foreclosure in 2022/23 means retirees will get ‘only’ a 3.1% increase in benefits in April of the year next, ”Suter said.

“Savers also face the risk of an increase in inflation next year, which means that a 3.1% increase could actually look like a reduction in real terms.”

Rising national insurance rates

National employee insurance is expected to increase next year as part of a plan to support adult social care.

It will drop from 12% to 13.25% on income between £ 9,568 per year and £ 50,270 per year.

It will drop from 2% to 3.25% on income over £ 50,270.

For example, take someone who is employed with a total taxable income of £ 30,000.

In 2021/22 they would pay 12% National Insurance on earnings between £ 9,568 and £ 30,000, leaving them with a bill of £ 2,451.84.

In 2022/23 if the thresholds remain the same, but the rate increases to 13.25%, they will have to pay.

Some reports suggest that the ‘prime threshold’ above which tax is due will drop from £ 9,568 to £ 9,880 in 2022/23.

If so, NI at 13.25% leaves them with a total NI bill of £ 2,665.90.

Suter added: “The decision to increase the NI rather than income tax was controversial, not least because retirement income is not subject to the NI – meaning that older people who are more likely to benefit short-term reforms were largely excluded from the payment. for them.

“For savvy savers, the NI hike makes sacrificing pension wages more attractive, as contributions are taken out of your income before the NI employer and employee are deducted.”