In light of the forthcoming ‘Brexit’ slated for 2019, Chancellor Phillip Hammond was always going to announce a tax raising Budget that would generate some extra cash in the Treasury coffers. As a man of prudence, the Chancellor will be putting the extra cash to reserves in case the economy needs some additional financial stimulus when the UK leave the EU.
The big question was where he would raise the additional funds. The headlines have concentrated on the additional tax (National Insurance Contributions) to be paid by the self-employed. Politically we must question how wise it is to increase the tax take on small businesses which have been key drivers in the relatively impressive growth in the UK economy since the 2008 Banking Crisis.
Central government can encourage or discourage a specific sectors by reducing or increasing tax and therefore it cannot be claimed that raising tax from small business is encouraging future growth.
There were no major announcements in this year’s Budget Speech and therefore we will have to wait for at least another year before a Chancellor rips up a most complicated tax system and introduces a simplified and joined up code that will encourage uniform growth in the economy.
Proposed changes that will have a potential bearing on clients financial planning include:
The tax free personal allowance is being increased to £11,500 in 2017/18.
The threshold above which higher earners start paying 40% tax is being increased to £45,000 for 2017/18 tax year.
At present the first £5,000 of dividend income is charged at the nil rate. From 2018/19 tax year this will be reduced to £2,000. This will affect those in retirement who are supplementing pension income from their investments. The measure will also increase tax paid by owner directors of private limited companies who take their pay in the form of both salary and dividends.
The Self Employed Class 4 NIC will increase from 9% to 10% from 6 April 2018 and to 11% from April 2019.
The combination of the reduction in the Nil Rate Dividend threshold and increased Self Employed NIC is effectively an increase cost on business at a time when employers are having to incur additional costs in terms of their contributions to workplace pensions.
Regulations were introduced from 6/4/2015 to restrict Purchase pension contributions to £10,000 pa for individuals who have flexibly accessed pension benefits. Following consultation, the Money Purchase Annual Allowance will be reduced from £10,000 to £4,000 from 6 April 2017.
The Government will publish their report on the review of State Retirement Age by 7/5/2017.
Overseas Pension Schemes
Major changes relating to QROPS will be included in the Finance Bill. Holders of overseas pension schemes need to fully consider the proposals in the Bill.
Anti avoidance schemes
HMRC are strengthening tax avoidance sanctions and deterrents – don’t mess with the man with the big gun.
Trading and property income allowances
The Government will legislate in the Finance Bill 2017 to create two new income tax allowances of £1,000 each for trading and property income. The allowances can be deducted from income instead of actual expenses.
Financial Planning measures introduced in previous budgets
ISA contribution allowance 2017/18 – £20,000
Inheritance Tax (IHT) 2017/18 Nil Rate Band – £325,000 plus £100,000 Residential NRB
Capital Gains Tax (CGT) Annual Exemption 2017/18 – £11,300
CGT rates 2017/18 – 10% & 20% for individuals and 18% & 20% on buy to let property.
A Budget which on reflection provided a few surprises which have made the headlines, but on the whole was reasonably low key.
However, at a time of increasing taxes, we would remind clients that we can design effective financial strategies using available allowances and exemptions in order to increase the after tax returns on their savings and investments. Please contact us for further advice on financial and tax planning strategies.