April will bring along a slew of changes in terms of personal finance, tax and pensions as the new tax year begins.
While tax thresholds stay frozen, individuals’ expenses such as council tax and energy bills have faced increases, creating a new environment for navigating personal finances.
Another year of frozen thresholds
Taxpayers will be denied any uprating to income tax thresholds or the personal allowance in the new tax year. Likewise, the inheritance tax-free allowance is frozen, with chancellor Rachel Reeves extending the freeze on the nil rate band until 2030.
Frozen tax thresholds punish taxpayers by stealth. When asset prices and wages rise but thresholds fail to track inflation, the result is higher tax bills.
Employees face yet another year of frozen thresholds. It means another year when our tax bills are set to go up, despite the headline tax rate remaining the same.
The main inheritance tax free threshold won’t have changed in over two decades by the time the freeze is lifted in 2030.
State pension rises by 4.1%
Under the triple lock, the state pension will rise from April in line with 4.1% earnings growth in July 2024.
UK pensioners should see a sizeable increase to their state pension of almost £500 a year, to bring the full new state pension to just under £12,000 from April.
The government will hope this rise in Brits’ state pensions will at least help to publicly reinforce its commitment to the triple-lock guarantee.
But how long they can keep these promises remains to be seen. The state pension will be at a level perilously close to the personal allowance and should overtake it in a couple of years if things continue, thanks to frozen tax thresholds. At that point, something must surely give.
Slowing the increase in state pension growth or unfreezing the personal allowance both seem unlikely, with pensions minister Torsten Bell having ruled out scrapping the triple lock guarantee.
The government might finally be forced to address the question of how much the state pension should really offer, at what age, and how it can increase payments sustainably each year.
Stamp duty holiday ends
The threshold for the 0% rate of stamp duty when buying a home drops from £250,000 to £125,000 at the start of the new tax year.
At present there is no stamp to pay on the first £425,000 of a property purchase. But from April that will change to £300,000. The result could be an extra £6,250 on the stamp duty bill for those buying their first home worth £500,000.
Council tax rises
A 4.99% rise in council tax bills is on the cards for many people, an above-inflation increase that will be about as welcome as a pothole at the end of the road or the bin collectors going on strike.
For holiday homeowners, there is also the prospect of a double tax bill from the local council from April. Councils can charge a premium of up to 100%, for properties classed as second homes. This can catch holiday homes and furnished investment properties not being rented out.
Charges can be even higher for so-called empty properties that are unfurnished and unoccupied for long periods of time. Exemptions may apply in some cases, for instance where a property is being used by someone that needs a second home close to work.
Energy bills to rise again
News that energy bills are set to rise for the third time in a row in April and by more than had been forecast will be unwelcome to say the least.
It’s set to be another ‘Awful April’ for households facing a barrage of bill increases with council tax, water bills, phone and broadband prices all set to shoot up. Those increases will take a good bite out of the rises in the state pension and the national living wage.
There is a small silver lining in that the spring should bring warmer weather and longer daylight hours, meaning less reliance on heating and indoor lighting. But there are many households struggling to pay off debts run up since energy prices shot skywards and many more will be wondering if costs will ever return to more ‘normal’ levels.
Millions of households have already switched to fixed tariffs and won’t be impacted by April’s change, and there are still deals available to those wondering if switching could be right for them, but it’s important if you are locking in for a year or longer to consider how that deal would stack up if the price cap subsequently falls.
Childcare support doubles for some from September
The continued rollout of the extended free hours childcare funding system will see free hours entitlement double in September.
This was announced in 2023, and the rollout began first in April 2024, when 15 free hours were extended to two-year-olds from the term after they became eligible. From September 2024 that then applied to children from nine months and upwards. Eventually, in September 2025, entitlement for eligible families will be increased to 30 free hours from nine months. It will mark a major increase in childcare subsidies by the time it is in full force.
However, some people won’t get the full benefit. Those households where there is an earner with income over £100,000 stand to miss out on the new arrangements.
That compounds the impact of the £100,000 ‘cliff-edge’ which sees higher earners lose out on tax free childcare worth up to £2,000 per child as well.
In total, families with two children aged nine months and two years old could miss out on £20,000 of additional support by September 2025.
In contrast, moderately well-off families where the main breadwinner earns £60,000 could access this support, with the figures illustrating how middle-income families have benefitted hugely from government reforms to child benefit and free hours childcare funding in the last couple of years, but the highest earners are excluded.
Source: AJ Bell. Assumes a family where both parents work, and the main breadwinner earns £60,000. Children aged nine months and two years old as at the start of each academic year. September 2023 figures factor in 50% entitlement to child benefit, accounting for the April 2024 changes to HICBC. Value of free hours based on UK average hourly childcare prices in Coram childcare survey 2024, uprated by 2% for 2025.
These articles are for information purposes only and are not a personal recommendation or advice. The value of your investments can go down as well as up and you may get back less than you originally invested. Pension and tax rules apply and could change in future.
