The past couple of years have been plagued by uncertainty for many of us, and as we head into 2022, the picture remains unclear in many respects.
In the face of uncertainty, it can be tempting to delay decisions. However, it can also be helpful to look to other areas where there is a degree of certainty or try and create a solid foundation in some areas of life.
In this article, we look at how this can be achieved financially, via various planning methods available. We review what we know, and the decisions that can be made around these areas.
Alongside this, we look at what could be on the cards for the months ahead.
Interest rates
In December 2021, it was announced that the Bank of England would raise interest rates to 0.25%. With inflation set to continue at above target levels until at least spring 2022, further increases to interest rates are expected through the year.
Any further increases to interest rates are likely to be felt by homeowners on tracker or variable mortgage rates, or on the ability to secure a fixed deal at a low rate for a new mortgage. Whilst any further increases to interest rates could signal good news for savers, it is uncertain whether any significant rate rises would manifest on the savings rates available. This is especially true if rates of inflation are to reach 6% – as predicted by some analysts.
As one of the main resources available to policymakers to control inflation, balanced against the ongoing risk of Covid variants, it will be very interesting to see what further moves are taken during 2022.
Dividends
A dividend tax increase will apply from April 2022, when tax on dividend income will be increased by 1.25% across all income band rates. For the 2022/23 tax year, basic, higher and additional rate tax payers will pay 8.75%, 33.75% and 39.35% on dividends respectively. For those with the ability, it might be worth looking at the options to maximise dividend income before the 6th April 2022, when the new rates will apply from.
National Insurance rates will also increase in April 2022, to 13.25% / 3.25% for employees main and higher earnings rates respectively and 10.25% and 3.25% for sole traders main & higher earnings rates respectively.
Lifetime allowance
In 2021, it was announced that the Lifetime Allowance (LTA) will be frozen at the current level of £1,073,100 until April 2026. Those nearing a pension pot of £1 million may face a decision as to whether or not they continue to fund their pension this year/in the coming years. There are several factors that need to be considered, which can be found in our blog on the Lifetime Allowance Freeze.
Other allowances
At the time of writing, there are no planned increases to income tax rates for the 2022/23 tax year, nor have there been any announcements regarding current reliefs on pension contributions. With continuing pressure on the public purse strings, squeezes on available allowances could be considered by the Chancellor in the near future. Those with the means to do so may look to take advantage of the allowances that are currently available.
If you would like further advice in respect of any of the information discussed in this article, our financial advisers can help. Please get in touch with us.