How your finances will change after April 5

Here are five things that will change at the beginning of the next tax year, and what you need to be aware of.

A hike in national insurance

From April 6, national insurance will rise by 1.25 percentage points. That’s an increased cost of £255 for those earning £30,000 or £505 for those earning £50,000.

There’s a similar rise for employers' NI, meaning that businesses will also feel the pinch. One way to help to mitigate it is to consider salary sacrifice schemes for pensions and other benefits, which allow you to take some of your benefits before your salary is paid, essentially avoiding national insurance on these items.

A hike in dividend tax rates

Dividend tax is payable on earnings from dividends above £2,000 a year. That means that if you have shares outside of an ISA or pension, you may end up paying more tax on the income from them.

If you are a self-employed director of a company and pay yourself with a combination of tax and dividends, this will affect you too.

Dividends up to the basic rate tax band of £12,570 a year will attract tax at 8.75 per cent, while those at higher rate will be at 33.75 per cent.

National Living Wage increase

For those on lower incomes, and their employers, an increase in the National Living Wage should also be noted. This is seeing a big increase, of 6.6 per cent. The living wage for workers over 23 goes up to £9.50 an hour, while for under 18s and apprentices it is £4.81, £6.83 for 18-20-year-olds and £9.18 for 20-21-year-olds.

Frozen thresholds

The Chancellor often uses a new tax year to update the thresholds for basic rate tax, higher rate tax, stamp duty and other taxes in line with inflation. This year, nearly all will be frozen, meaning that most of us are worse off in real terms.

The personal allowance (amount most of us can earn without paying tax) remains at £12,570, and the threshold for paying higher rate tax remains at £50,271. From earnings of £100,000, the personal allowance begins to be withdrawn, and the additional rate threshold remains at £150,000.

Freezing thresholds contributes to something called ‘fiscal drag’, which means that, as wages rise, more people are dragged into higher rate tax because the threshold doesn’t keep pace with the rises.

Higher council tax

Councils can raise your tax rates by up to three per cent from April, with prices up by a quarter in the past decade. Those in bands D and above will receive a £150 tax rebate, aimed at dealing with higher energy prices, while those in bands E and below will have no recourse to this.

Higher energy prices

Although the change in the energy cap is not pegged to the tax year, for most of us our energy bills will go up at roughly the same time. Unless you are on a fixed rate for energy, the capped amount your provider can charge for energy goes up 54 per cent from April 1.

Higher mortgage and debt repayments

Ahead of the new tax year, the Bank of England has already indicated that it is raising interest rates by 0.25 percentage points. Mortgage companies are already indicating that they will follow suit, raising rates for those on SVRs and tracker mortgages.

A 0.25 percentage point rise adds around £300 a year onto the average annual mortgage payment, according to online mortgage broker Trussle.

What to do about it

All of these changes will have us all feeling the squeeze at the beginning of the new tax year, so it is more important than ever to take advice to ensure you don’t pay more tax than you need.

Proper planning, using tools such as ISAs and pensions, as well as salary sacrifice and investment plans, can help to ensure you can maintain the progress towards your financial goals even as the goalposts change.