Spring Budget 2017 – what it means for you

This was the last Spring Budget. Future Budgets will move to the autumn, with a toned-down statement on the economy delivered each March. This will give welcome breathing space between the announcement of Budget changes and their introduction.

The key points were:

A fairer tax system

As part of a drive to make the tax system fairer there were two main changes which were due to come into effect from April 2018.  However, this has now been reduced to just one for the time being.  The proposed increase on National Insurance contributions for the self-employed has now abandoned. As such the reduced dividend allowance will be the only change.

Rates, allowances and what we already knew

Here’s a reminder of what we already knew was coming in 2017/18:

2017/18 tax rates and bands confirmed

The personal allowance for 2017/18 is confirmed as £11,500 and the higher rate threshold will rise to £45,000. Increases are planned to £12,500 and £50,000 respectively by 2020.

The increase to the higher rate threshold will not apply in Scotland where the threshold will remain at £43,000.

The individual capital gains tax (CGT) allowance will increase to £11,300.

IHT residence nil rate band

From April, an extra £100,000 IHT nil rate band is available where the family home passes to direct descendants on death.

Lifetime ISA introduction

Under 40s will have a new savings option which can help them to get a foothold on the property ladder. Up to £4,000 a year can be paid into the Lifetime ISA and this will receive a 25% Government Bonus. Most first time house buyers can access their fund tax free prior to age 60.

£20k ISA allowance

The ISA savings allowance is set to receive an above inflation increase. Savers will be able to enjoy an additional £4,760 of tax free savings.

Reduced Money Purchase Annual Allowance (MPAA)

The MPAA is to be cut from £10,000 to £4,000 from April 2017. This only affects those who have accessed their Defined Contribution pension under the new pension flexibilities and wish to continue paying into their pension. Those only accessing their tax-free cash, or who were already in capped drawdown and haven’t exceeded the cap, will keep the full £40,000 allowance.

Reduction to the dividend allowance

The annual dividend allowance introduced last year will remain at £5,000 for the 2017/18 tax year, but will then drop to £2,000 from April 2018. In particular, this will hit small and medium sized business owners who take their profits as a dividend.

Employer pension contributions will become an even more attractive way of extracting profits from a business. And if the director is over 55 they can now have full unrestricted access to their pension savings.

Social care: green paper and red light to ‘death tax’

Demographics continue to drive the search for innovative solutions for long term care funding. The government will set out proposals for future funding of social care in a green paper to be published later this year. The Chancellor confirmed that a ‘death tax’ (a flat rate charge applicable to all estates) would not be among the measures considered.

QROPS clampdown gets overseas pension transfers back to basics

A new 25% tax charge on some QROPS transfers effectively restricts penalty-free movement of tax-relieved UK pension funds overseas strictly to the ‘vanilla’ circumstances originally envisaged.

There’s no change for those seeking genuine pension portability by moving their pension savings overseas:

  • to their employer’s occupational pension scheme; or
  • to their country of residence; or
  • within the EEA.

But the tax clampdown, which applies to transfers requested after 8 March 2017, will hit those moving their pension to ‘third party’ jurisdictions to avoid UK tax. And anyone whose status changes within 5 years of a transfer, such that they fall outside the penalty-free categories, faces a tax charge after the event – reducing scope for ‘jurisdiction hopping’.

As well as recovering tax for the Exchequer, this should also help protect UK pension savers against overseas pension scammers.

Tax avoidance deterrents strengthened

As part of the Government’s objective to stop the loss of tax revenues through avoidance schemes, it confirmed that a financial penalty on the enablers of a scheme that fails the GAAR test will be introduced from July. Enablers include anyone involved in the design or promotion of a scheme and who may ultimately benefit from a client using the scheme, for example, by charging them a fee. The penalty could be as much as the amount of tax avoided.

The intention is clearly to deter anyone in the supply chain from getting involved in the first place, killing such schemes at first base.

This is not a concern for those that use packaged IHT solutions (loan trusts and discounted gift schemes), or investing in offshore bonds.

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