As a New Year arrives, so too do new challenges, opportunities and changes to keep in mind. Here is a guide to what to expect and other aspects to consider.
Although the New Year doesn’t in and of itself provide a legal reset of our finances (we have to wait till the end of the tax year for that), it does provide a useful starting point to consider the year ahead and what we should be doing with our money.
The clock is ticking for end-of-tax-year decisions too, so now is a good moment to take stock and prepare.
There is also good reason to think about how the landscape of our personal finances is shifting. From interest rates to inflation, tax changes and the economic outlook – all these factors will impact our decision making in one way or another.
Having these issues in mind might only serve to confirm plans and choices you have already made, but they are worthwhile having in mind nonetheless.
Economic outlook
The performance of the economy steadily worsened as 2024 progressed, with the economy essentially juddering to a halt by December. But as some of the effects of significant Government Budget changes feed through, the prospects for the economy should improve slightly.
2024 was a year the economy finally got on top of inflation, although for the year ahead in 2025, it looks as if it will remain an ongoing worry.
With wages continuing to rise above inflation and inflationary effects of Chancellor Rachel Reeves’s Budget, rate setters at the Bank of England look increasingly likely to keep rate cuts slow and steady.
This will come as fairly cold comfort to mortgage holders who are looking for new deals in 2025, and for prospective first-time buyers who likely will continue to be disappointed by rates in the mortgage market. But deals have improved and shopping around for the best offer can still yield better outcomes.
As for markets, there is likely to be fresh uncertainty as inflation worries abound, which keeps interest rate expectations raised.
This is compounded by the arrival of the Trump Presidency which looks set to upend some of the economic norms of recent times. The consequences for this remain uncertain. As ever however careful preparation of a portfolio for all outcomes remains essential.
End of the tax year
Fortunately, we do have some more concrete changes for our finances to prepare for – or at least to keep in mind as we approach 5 April.
Changes to capital gains tax (CGT) on share disposals already came into effect as of 30 October 2024, while the addition of VAT to private schooling fees take effect from 1 January.
Stamp Duty (SDLT) changes take effect slightly before the new tax year, with a reduction in the zero-rate threshold to £125,000 – half the previous level. Properties bought between £125,000 and £250,000 will now face a 2% SDLT charge.
From 6 April we can expect a multitude more measures. Electric vehicles will be liable for vehicle tax for the first time bringing them into line with petrol and diesel vehicles.
A new UK non-dom regime comes into force with a residence-based system. New residents will be able to claim in order to not pay income tax on foreign assets for four years as long as they haven’t been a UK resident in the previous decade. The new system comes with many complications, so any current non-doms should seek out advice for the best outcome as soon as possible.
The hike in National Insurance Contributions from employers comes into effect, rising from 13.8% to 15%, while the new national minimum wage rise comes in too.
Carried interest will face a hike in taxes too with the rate increasing from 28% to 32%. Further reforms are due in April 2026.
The new tax year does bring some benefits though. The basic and new State Pension will see a 4.1% uplift, with the full new State Pension rising from £221.20 to £230.25 per week, adding an extra £470 annually.
Importantly, there’s no change in ISA, pension or other valuable allowances – which are ‘use it or lose it’ by the end of the tax year. It is essential to make the most of these in order to ensure better outcomes for your money in the year ahead.
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