Financial Highlights to Watch 2019
A happy new year to you for 2019! As the topic of Brexit increasingly dominates the headlines, our clients are increasingly (and understandably) turning to our financial advisers for reassurance and advice about how to grow and protect their finances.
Many people are searching for concrete answers about what is going to happen in the aftermath of Brexit. After all, nobody likes turbulence. What will happen to the UK economy? How will my pension and/or investments be affected?
These are hugely complex matters and there are few simple, iron-clad answers which exist. Politically speaking, the UK is very much in unchartered territory and experts from across the board are predicting different outcomes for Brexit.
That said, there are some financial highlights coming up in 2019 which you can reasonably expect to transpire, regardless of the Brexit outcome.
The following hold important implications for your financial planning, so we encourage you to speak with one of our advisers to ensure you maximise your income and tax savings:
Currently in 2018-2019, the Personal Allowance entitles you to earn up to £11,850 tax-free. Following the Chancellor’s budget announcements last Autumn, you can expect your allowance to rise to £12,500 from 6th April 2019.
Furthermore, Higher Rate taxpayers can also expect the higher rate threshold to rise from £46,350 to £50,000. For those earning over this amount, this effectively means that £3,650 will be taxed at 20% (the Basic Rate) instead of 40%.
So, regardless of the outcome of the Brexit negotiations the government has essentially announced a lowering of income taxes for Basic Rate and Higher Rate taxpayers.
This might sound good, but there are other expected developments which will likely dampen the impact on your take-home pay.
For Higher Rate taxpayers, for instance, you should note that whilst the higher rate threshold is set to rise, National Insurance contributions will also be increasing to 12% on earnings between £46,351 to £50,000.
Whilst the Personal Allowance is set to rise, the impact on your take-home pay is also likely to be offset by a planned rise in employee pension contributions.
In 2018-19, employees earning over £10,000 are currently obliged to contribute a minimum of 3% of your salary towards your workplace pension (your employer must also give at least 2%). In 2019-20, however, you must contribute at least 5% of your salary whilst your employer must contribute at least 3%.
You can, of course, opt out of auto enrolment in order to keep more of your take-home pay. However, we highly recommend that clients speak with one of our financial advisers if you are considering this option. Your particular situation might be unique, but in most cases, it is best to remain within your auto enrolment scheme for the benefit of your retirement planning.
The Lifetime Allowance for pension savings is also set to rise in line with CPI for 2019-20, going up to £1,055,000. The State Pension is also set to rise by 2.6% in April.
Currently, in 2018-19, you can pass on up to £325,000 of your estate tax-free as an inheritance. You can also pass on an extra £125,000 on the value of your home, tax-free, provided it goes to your direct descendant (i.e. the Residence Nil Rate Band).
In 2019-20, however, the Residence Nil Rate Band will be raised to £150,000 – potentially giving you another £25,000 to pass on to your beneficiaries instead of the taxman. Speak to one of our financial advisers if you would like to know more about this.
Help To Buy
Many first-time buyers have been able to leverage the Help To Buy scheme to get onto the property ladder. However, please be aware that the scheme is set to close to new applicants later this year (likely in November 2019).
You might want to consider the Lifetime ISA as an alternative option if you are planning on your first property purchase after this year. This scheme lets you put aside up to £4,000 per year, with the government topping it up to 25%.
However, there are drawbacks to this scheme that you need to take into account and we recommend that you talk to one of our financial advisers prior to making any big financial decisions.
Brexit costs: A brief thought
The above we can predict with more certainty, yet it is quite likely that, in the aftermath of Brexit, economic growth is going to slow down and life will get more expensive. How much so depends on the political and trading settlement that is agreed between the UK and EU.
In light of this, it is even more important that individuals and families set a spending plan if they have not already done so, and identify areas where unnecessary expenditure can be cut. Holidays, Christmas and technology subscriptions are all common areas to look at.
Regardless of Brexit, it is always a good idea to build up an emergency fund of at least 3 months’ worth of living costs. If living costs do rise after Brexit, then “rainy day” funds like these can give you a helpful buffer as you transition to a new spending plan.