With Brexit looming ever-closer, it is no surprise that ‘Spreadsheet Phil’s’ Budget placed a heavy focus on how he planned on steering the good ship Britannia through the choppy economic uncertainty ahead.
Despite the UK being the second-fastest growing economy in the G7 in 2016, Mr. Hammond didn’t want to appear complacent, so instead delivered a Budget designed to replenish the British coffers and build a strong foundation on which to build our ‘brave new world’.
The Chancellor’s main focus was on business, especially the self-employed, and included Business Rates and the taxation on the new ways of working. As ever, the Budget also addressed tax ‘avoidance, evasion and imbalances’ and set out to hike certain taxes to bolster our economy.
For our clients, we are recommending that you pay particular attention to the reduction in Money Purchase Pension contributions, as now is the time to maximise any unused allowances, before they are sharply cut. It is also worth look at the new Inheritance Tax allowance for home owners, as this could have significant impact upon your estate planning.
If you are a business owner that’s not already a client of ours, this Budget is of particular importance to you, and we feel that it may be worth booking a meeting with us to look at how you can plan your finances for the coming 12 months.
The self-employed appeared to be the hardest hit in this Budget, with the onus being that the Treasury felt they weren’t paying enough tax. To combat this, Class 4 National Insurance contributions will be increased from 9% to 10% in April 2018, and then again from 10% to 11% in April 2019. It is important to note that anyone earning over £43,000 will continue to be taxed at 2% and those earning below £8,060 will pay nothing.
On the reverse side of this coin, some business will be assisted with their Business Rates, with £435 promised to firms affected by the increases, including a £300m hardship fund for those worst hit. Rate rises for businesses who will lose existing relief will also be capped at £50 per month.
Employees will also be affected, when some Salary Sacrifice benefits will be withdrawn from next month (April 2017). This will mean that employees can no longer gain a tax and National Insurance benefit by ‘buying’ certain services through their pre-taxed earnings. Thankfully, employer provided pension contributions, cycle schemes and employer supported childcare schemes will remain unaffected by this move.
Pensions and Savings
There were no changes made to the previously proposed reduction to the tax-free allowance on pensions. Regulations introduced in April 2015 had already restricted Money Purchase Pension contributions, for those already taking an income, down to £10,000. Mr. Hammond’s Budget compounded this further, but reducing the limit down to £4,000, with effect from April 2017. If you have not already used this tax-year’s allowance, it would be prudent to maximise this now.
For directors, dividend income is set to be reduced from £5,000 down to £2,000. The measure, affecting small business owners and investors, will come into force in April 2018. It is important to note, however, that dividend income paid on shares held in a Stocks and Shares ISA will still free of additional tax.
Every Budget aims to tackle tax evasion and avoidance, so it is not a surprise the Chancellor has laid out proposals to tackle the ‘over-abuse’ of overseas pension schemes. The general rule is that transfers to QROPS, requested after 9th March 2017, will be taxed at a rate of 25%, however, there are multiple exceptions. If this moves affects you, it is worth speaking to us.
A new type of savings account, which came to light last year, is the Lifetime ISA. Whilst this tax-efficient mechanism is not relevant to everyone, for those aged 18-39 years old, the LISA that will be available from 6th April 2017 could be a great savings tool. The LISA is designed for those who are savings towards the purchase of a house, or planning ahead for their retirement. As long as the purpose of the LISA meets one of these two criteria, the Government will pay a bonus of £1 for every £4 deposited, with a maximum contribution amount of £4,000 per annum. If you would like to know more about how this vehicle could benefit you or your children, please contact the office.
In the 2017/18 tax year, the Personal Allowance for Income Tax is being increased to £11,500, meaning that workers should see an increase to their tax-home pay. For higher rate tax payers, there is also some good news: the threshold for 40% tax is being increased to £45,000 as of April 2017/18, so they too will have slightly ‘plumper’ pay packets.
In addition to the existing £325,00 Inheritance Tax allowance, as of 6th April 2017, homeowners, and those who own a share in their home, can look forward to an additional benefit. An allowance of £100,000 for this tax year-(2017/18) can be utilised when your home or share is passed on to direct descendants upon your death. For the next 3 tax years, the allowance will be increased by £25,000 (i.e. £125,00 for 2018/19, £150,000 for 2019/20 and £175,000 for 2020/21). This allowance is also being back-dated to 7th July 2015, so could still apply for people who dies last year.