Following much noise and fury in the press we are left with a budget with a limited number of surprises. Speculation before the budget was unveiled, included a total abolition of the existing pension structure, the withdrawal of tax free cash and its wholesale replacement with an ISA type system.
Although this has not come to pass, a “Trojan horse” does seem to have been established in the form of the Lifetime ISA. At this early stage, the rules seem a little sketchy, but it is intended to have two uses; as a way of collecting a deposit for an initial house purchase and after age 60, to provide retirement funding.
The limitations revealed to date are a user age group of 18 to 40, a 25% government bonus on savings made before the age of 50, a limit of £4,000 per annum, (as part of the full ISA limited of £20,000 in April 2017), and a first home with a cost of no more than £450,000.
The existing Help to Buy ISAs can be transferred into the Lifetime ISA in 2017, but an eligible taxpayer could have both, but can only use the government bonus for a house purchase from one product.
We are told that the proceeds after age 60 will be tax free, but what is less clear is how the penalty side will work. Proceeds taken before 60 cause a withdrawal of the government’s 25% bonus, the associated interest, growth and a 5% interest charge. How this is supposed to fit in with a Help to Buy ISA is anyone’s guess – I suspect that “wait and see” would be a good option!
Does it end pensions, as we know them? No, but it does suggest a direction of travel away from the current system, where premiums are exempt from tax when they go into a pension, exempt from tax inside a pension and taxed at withdrawal, (EET). The Lifetime ISA changes this to a premiums taxed at input, exempt accumulation and exempt at withdrawal scenario, (TEE). As a long standing tradition, legislation in the UK is not retrospective, so what ever happens, we are looking at more complexity in the short run and potentially, a horrendous changeover period. So much for pension simplification!
For people with SIPPs who want to buy commercial property the reform of Stamp Duty Land Tax for commercial property will reduce the Stamp Duty payable, or even eliminate it.
Landlords with one or more Buy-To-Let houses are still on the hook for 3% additional SDLT on new purchases. As a bit of a relief for people buying and selling their main home, there is now a 36 month period to claim a refund of the higher rates if they buy a new main residence before disposing of their previous main residence.
For people who would like a list of things to do and check to maximise their take-up of allowances and minimise their tax bills:
- Try and balance incomes and pension payments between spouses. The personal allowance for 2016/17 is £11,000 and for 2017/18 will be £11,500.
- The higher rate threshold will be £43,000 for 2016/17 and £45,000 for 2017/18.
- Pension annual allowance is still £40,000, or your earned income, whichever is the lessor and tapering still applies over £110,000. If your adjusted income is over £210,000, your pension allowance is £10,000.
- The Pension Lifetime Allowance comes down to £1Million in April 2016; transitional protection will be available, but has strings attached; seek advice.
- There are minor changes to National Insurance now, but wider changes flagged from April 2018. Self-employed Class 2 NICs will be abolished and the system will change. Presumably, Class 4 NICs will be extended.
- Capital Gains Tax rates are coming down, (except for residential property not subject to Private Residence Relief), for basic rates, from 18% to 10% and for higher rates from 28% to 20%.
- Entrepreneur’s Relief is to extended to unlisted shares held for more than three years from 6th April 2016 and subject to a lifetime limit of £10Million at a 10% rate of CGT.
- IHT is little changed, except for non-domiciled individuals. As the Nil Rate Band is unchanged, some IHT planning will be essential for more people; seek advice.
- Corporation Tax is coming down from 20% now, to 19% in 2017 and 17% in 2020.
- The Dividend Allowance of £5,000 and the Personal Savings Allowance of £1000, (£500 for higher rate taxpayers), give some new opportunities for tax planning, so do the sums yourself or seek advice
There is not much certain in life, but change seems to be one of them. Keep in touch with your adviser and make the most of your investment reviews.
If you would like to know more about how we can help you plan and realise your financial goals then contact us at info@martin-redmanpartners.co.uk or call us on 01223 792 196.
The information contained is for guidance only and does not constitute financial advice. It is based on our understanding of UK legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly no responsibility can be assumed by Martin-Redman Partners its officers or employees, for any loss in connection with the content hereof and any such action or inaction.