22 money and financial changes to watch in 2022

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, discusses the upcoming year and specifically 22 money and financial changes to watch out for in 2022.

“2022 is a year of change, but not in a good way. Most of the financial developments in the pipeline will leave us worse off by the time we struggle to the end of 2022. The tax rises announced around the Budget will kick in, along with higher prices for everything from energy bills to rail fares and pub prices.

“It’s not all bad news though. Buried among the price rises are a few more positive changes, including the end of the loyalty penalty for insurance customers, lower water bills, and easing the admin burden for families of those who pass away.

“Unfortunately, for most of us, the bad outweighs the good, so we need to plan ahead and be prepared for the worst 2022 can throw at us.”

1. 1 January: Full UK customs declarations required on goods coming from the EU

This means an awful lot more paperwork for hauliers and more checks at ports. There are fears this could mean more bottlenecks, and supply chain problems, which is going to make it even trickier for shops to keep the shelves full in the new year.

2. 1 January: The end of the loyalty penalty for home and motor insurance consumers

From this point, when you’re sent a renewal quote, your insurance company will have to offer you the same deal that they would give to new customers. This will effectively kill off the practice of ‘price walking’, where you’re offered a cheap deal to tempt you in, and then every year your renewal gets more and more  expensive. It’s good news for those who stick with one provider, but it’s likely to mean the end of very cheap deals for those who are prepared to keep switching.

3. 1 January: Inheritance tax reporting rules change

A tweak to the rules will mean there’s less paperwork for thousands of people with no inheritance tax to pay, because it broadens the rules for people who don’t have to submit full accounts to HMRC when going through probate. It should spare 230,000 people the extra stress each year.

4. 3 February: Interest rate meeting

The markets are expecting a rise early in 2022. Weak growth figures and the rapid rise of the Omicron variant make the exact timetable difficult to forecast, but we do know that rates are likely to end 2022 higher than they are now.

Mortgage and savings rates have already been rising towards the end of 2021, as markets started pricing in a rise. But while mortgage and credit card rates are likely to rise in the wake of any Bank of England rise, the impact on savings will be far less striking. There’s a good chance a number of banks won’t pass rates on at all, while others will only pass on a fraction of the rise, and even then, they could delay it for weeks.

In this environment, it’s always tempting to become a wait-and-see saver, putting off fixing a savings rate until rates are higher. However, the uncertain timing of any rise means that if you put off a switch, and wait it out in a dismal high street savings account paying 0.01%, you’ll miss the opportunity for a better rate in the interim.

5. 4 February: Ofgem announces new energy price cap

This is announced in February and then introduced in on 1 April. The announcement isn’t going to be pretty, because it’s going to reflect far higher wholesale prices, plus the cost of the industry picking up the pieces after energy company failures. We can expect annual bills to rise by hundreds of pounds.

At this point Ofgem may also announce the results of its consultation into how the cap operates. This is likely to change the rules to allow energy companies to bump up prices when wholesale prices go through the roof. The idea is to try to prevent more energy company collapses at times of runaway energy prices.

6. 1 March: Rail fares rise

This is expected to be delayed from January, in the same way it was in 2021. It’s usually linked to RPI in July, which would put rises at 3.8%, and would mean a big hike in ticket prices. However, we’re yet to have confirmation of either the rise or the timing, because the government keeps delaying the announcement.

This makes life particularly difficult for people trying to plan their travel and monthly budgets for next year. It also makes it harder for people trying to make big and important decisions about their future. If you’re considering a move further from the office, or working from home for at least part of the week, it makes it much trickier to work out what that means for your finances  if you have no idea what the commute will cost you.

7. 31 March: 12.5% VAT rate for hospitality and tourism set to end

The tax break for businesses in hospitality and tourism has been gradually phased out, and comes to an end in March. This has helped some companies keep a lid on prices despite losing so much money during lockdowns and then wrestling with runaway wage costs. There’s a risk this change will prompt price rises in pubs and restaurants.

8. 1 April: Energy price cap comes into effect

April is going to see all sorts of prices rise, and higher energy prices are going to be particularly painful. The current cap of £1,277 could well rise by £500 or more. And it’s worth bearing in mind that this isn’t a fixed cap on the most you can pay: it’s a cap on prices for the average user. If you burn through more energy, or live in a large or inefficient house, you could see prices rise even further.

9. 1 April: Annual TV licence fee change is scheduled

At the moment, we don’t know how the licence fee will change. The BBC asked for an inflation-linked rise, and the government rejected the proposal. It means we could see a smaller rise or the licence fee frozen altogether.

10. 1 April: Council tax rises

The Budget paperwork included the fact that councils will be able to raise tax by 2% – plus another 1% for social care – without holding a referendum. The enormous rise in the cost of social care, and the additional cost of National Insurance on council wage bills, is going to put them under real pressure, so many of them are likely to raise council tax as much as they possibly can.

11. 1 April: Inflation was expected to peak around now

Early forecasts put the peak in April, on the assumption that with the warmer weather, demand for energy will fall, and that by then some of the supply chain problems would have eased. It remains to be seen whether this will be enough to put the brakes on inflation.

12. 1 April: National Living wage and minimum wage rise takes effect

This will see a major boost, with the living wage for over 23s rising from £8.91 per hour to £9.50 per hour. Those aged 21-23 will see their wage rise from £8.36 to £9.18 and those aged 18-20 will see a rise from £6.56 to £6.83. These are inflation-busting rises, but it’s worth bearing in mind that those on lower incomes tend to spend a higher proportion of their incomes on essentials like energy and fuel, and the price of both is rising far faster than either broader price rises or these minimum wage levels.

13. 1 April: Water bill price cuts come into effect

One small consolation is that water bills are likely to fall very slightly, as water companies have been told to drop prices very gradually until 2025.

14. 1 April: Prescription charge changes could kick in

For the past few years, prescription costs have risen in line with inflation each April, although we have no confirmation this is planned for 2022. The other variable this year is that the government has proposed changing the rules on the age when you stop paying for prescriptions. At the moment there’s no charge for over 60s, but there’s a chance it could change to apply to those over state pension age, dragging millions of people into having to pay for essential medicines.

15. 6 April:  Higher National Insurance

National Insurance will rise 1.25 percentage points, to 13.25% on earnings between £9,564 and £50,268, and 3.25% on earnings above this. It will have a disproportionate impact on lower earners, because it kicks in at a lower wage level than income tax and basic rate taxpayers pay a higher rate than those on bigger salaries. It also hits younger people, because when you’re over state pension age, you don’t have to pay National Insurance. It’s the first step towards the introduction of the Health and Social Care Levy the following April, which will extend the charge to anyone with earned income above working age too.

If you’re worried about National Insurance, you can cut your tax bill and boost your pension if your employer offers a salary sacrifice scheme. These effectively cut your pay, and boost pension contributions by an equivalent amount. Because you don’t pay tax or NI on pension contributions, the full value of the cut in salary goes into the scheme. This won’t leave you better off today, because you’ll get less in your pay packet, but it means you’ll be boosting your income in retirement instead of handing over more to the taxman.

16. April 6:  Higher dividend tax begins

The dividend tax will rise 1.25 percentage points in April to 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers. This will affect those who make more than the dividend allowance of £2,000 a year in investments, or own their own company and pay themselves in dividends

The most effective way to cut dividend tax on investments is to make use of your ISAs. You can shelter up to £20,000 a year in an ISA, and all income and growth is completely tax free. Assets can also be passed between spouses without triggering a tax bill, so between you, you can shelter £40,000 a year in ISAs.

If you don’t have enough allowance to hold your entire portfolio in ISAs, income-producing assets can be shared between a married couple, so that both take advantage of their allowances. The balance can be held by the spouse paying the lower rate of tax, to reduce the tax payable.

17. 6 April:  State pensions rise 3.1% with the double lock

The triple lock was suspended for a year, after the pandemic distorted wage inflation. If it had risen with the triple lock as usual it would have been hiked 8.3%.

18. 6 April:  Tax thresholds remain frozen

Rishi Sunak announced last March that key thresholds would be frozen this April. It means that over time, rises in wages and house prices will mean more people paying more tax, and more moving into the higher rate band. It’s a horrible stealth tax that will hit millions of people for years to come.

• • The personal allowance will stick at £12,570 in April, and every year until 2025/26.
  • The higher rate threshold will be frozen at £50,270.
  • The capital gains tax annual exempt amount remains at £12,300.
  • The pension lifetime allowance is still £1,073,100.
  • The inheritance tax nil rate band is £325,000, and the residential nil rate band £175,000.
  • Plus everything from ISA allowances to the annual gifting allowance, the high-income child benefit tax charge and the savings allowance remain the same.

19. 6 April:  No fault divorce introduced

This has been delayed by both Brexit and the pandemic, and is finally set to come into operation in the new tax year. The current system of blame and recrimination will be replaced by one where one or both of the couple give notice of intention to divorce and then wait for six months for the process to take place. This is a long-awaited and welcome change, which will drop the current adversarial process that seems to have been designed to cause the maximum conflict and distress.

20. 6 April:  Flat fee charges banned on small workplace pensions

Auto-enrolment rules mean that every time we start a new job, there’s a good chance we start a new pension too. People who move jobs frequently can end up building up a huge number of small pension pots. The problem is that if you have a small pot and the pension company charges a relatively high flat fee, then over the years the fee will effectively hoover up the entire value of the pension.

The tweak will help avoid this possibility by banning the charging of flat fees on qualifying workplace pension pots worth less than £100.

21. 1 June: Pension Wise nudge

Rules come into force where people first accessing their retirement income will be offered an appointment with the guidance service, Pension Wise. It’s hoped that this will give people vital independent support when they’re considering the best way to take income from their pension.

22. 30 September: Old £20 and £50 notes withdrawn as legal tender

Dig out those old notes and make sure you spend them by the deadline.

 

Kindly shared by Hargreaves Lansdown

Main photo courtesy of Pixabay