Why you'll be more broke next month

For many Brits, the start of the new tax year next month signals a major change in their personal finances.

Sweeping changes to benefits will affect both workers and the unemployed as the Coalition’s cuts start to really bite individual households.

[Related feature: Tax and benefits changes for the 2013/14 tax year]

Will you be affected, and by how much? Here’s what will change next month and who it hurts…

The benefit cap begins

From the 15 April, the Government will begin rolling out its benefit cap – a restriction on the amount that households can receive in state help.

It’s designed to stop homes where no one works receiving more in benefits than the average working household earns.

At first it will only affect claimants living in Bromley, Croydon, Enfield and Haringey, but then it will be introduced in all other councils by the end of September.

Most unemployed people of working age will be hit by the cap, which will be £500 a week for couples or single parents, and £350 a week for single adults living without any kids.

You won’t be affected by the cap if you receive certain benefits or credits, including Working Tax Credit and Disability Living Allowance (or the new Personal Independence Payment).

The government has a benefits cap calculator to help claimants work out how much they’ll lose a month.

Granny tax is go

Last year’s Budget had some unwelcome news for pensioners. The tax system was to be ‘simplified’ and they would lose their extra personal allowance – the amount they can earn without paying any tax. The press quickly dubbed this the ‘granny tax’.

Pensioners have enjoyed a higher personal allowance since the measure was introduced back in the 1920s, but this all changes in the new tax year.

If you turn 65 before next month, you’ll receive a slightly higher personal allowance than before but it will be frozen at the 2012-13 levels.

But if you hit the big 6-5 after April 5th, you won’t receive any extra allowance you’ll simply have the same personal allowance as everyone else, which is £9,440.

Universal credit unleashed

Universal credit is one sole benefit that will replace a wide range of complex benefits and credits, including Income Support, Jobseeker’s Allowance, Housing Benefit, Child Tax Credit and Working Tax Credit.

The idea is that it will simplify the benefits system. It is Ian Duncan Smith’s brainchild and begins a very slow roll-out from next month.

In April it will be trialled within certain areas of the north-west. Then from October all new claimants will receive the benefit automatically, with existing claimants being gradually moved over. The roll-out should be finished by the end of 2017.

According to the government, it will make it easier for people to move back into work, because the benefit will taper off gradually. Currently, some benefits simply stop abruptly the moment a claimant finds work, leading to situations where it simply doesn’t pay to get a job.
 
Unfortunately, the change isn’t great news for all claimants: 2.8 million people could be left worse off as a result.

Around 1.3 million households will be an estimated £100 a month worse off, while the 300,000 worst-affected will lose £3,600 a year. The average reduction in entitlement is estimated at £137 a month.

Bedroom tax begins

The bedroom tax isn’t really a tax; it’s a reduction in the amount of housing benefit that some families will be able to claim.

So, if you receive housing benefit and have one or more spare bedrooms then from April you’re likely to face a cut in the amount of help you receive.

The government estimates that over half a million tenants will be hit, but hopes that the move will encourage social housing tenants to move into more appropriately-sized homes or even find work.

If a tenant is found to have one spare room, their housing benefit will fall by 14%. Tenants with two or more spare rooms will lose 25%.

And you might be surprised by what counts as a spare room. Children under the age of 16 are expected to share a room if they are the same gender, while children under 10 are supposed to share with brothers or sisters. That means families could lose housing benefit simply because their children have their own bedrooms.

Council tax benefit cut

While many of these changes are tweaks and caps, one benefit is simply being scrapped next month. The national council tax benefit scheme is being dropped, leaving local authorities to support their poorest residents in paying the charges.

Some councils have agreed to make up the difference but others plan to ask poorer households to contribute something. At least one council has said it will charge poorer residents at least 20% of their tax bill, meaning they’ll face bills of at least £200 a year and possibly more.

Will you be affected by the benefit changes? Do you think they are fair? Have your say using the comments below.