Philip Hammond has delivered his first Budget as Chancellor, which will also likely be the last Spring Budget.
Please see below some key points that were announced yesterday;
From the 6th April 2017 the tax-free personal allowance is being increased to £11,500. In addition, the threshold above which higher earners start paying 40% tax is being increased to £45,000.
The starting rate limit of £5,000 for the 0% tax on savings will remain at its current level of £5,000.
Also from 6th April 2017, tax will no longer be deducted at source from;
- interest distributions of open-ended investment companies
- authorised unit trusts and investment trust companies, and
- interest on peer-to-peer loans.
From the beginning of the 2018/19 tax year, the amount of dividend income that is charged at the nil rate will be reduced to from £5,000 to £2,000.
From 6th April 2017 Corporation Tax has reduced from 20% to 19%
- National Insurance Contributions
The Government has announced that it will legislate to increase the main rate of Class 4 NICs from 9% to 10% with effect from 6th April 2018 and from 10% to 11% from 6th April 2019. This measure offsets the increased differential between the rates of NI paid by employees and the self-employed, particularly with the abolition of Class 2 NICs from April 2018.
- Money Purchase Annual Allowance
If you are in a Flexi-Access drawdown pension arrangement and receiving an income from this pension, you are currently restricted to contributing £10,000 without being subject to a tax charge. However, as from 6th April 2017 the Government have confirmed that this figure will reduce to £4,000.
The Government have announced that legislation will be introduced in the Finance Bill 2017, so that any transfers to QROPS requested on or after 9 March 2017 will be taxed at a rate of 25%, unless at least one of the following apply:
- Both the individual and the QROPS are in the same country after the transfer.
- The QROPS is in one country in the EEA (an EU Member State, Norway, Iceland or Liechtenstein) and the individual is resident in another EEA country after the transfer.
- The QROPS is an occupational pension scheme sponsored by the individual’s employer.
- The QROPS is an overseas public service pension scheme as defined at regulation 3(1B) of Statutory Instrument (SI) 2006 No. 206 and the individual is employed by one of the employers participating in the scheme.
- The QROPS is a pension scheme established by an international organisation as defined at regulation 2(4) of SI 2006 No. 206 to provide benefits in respect of past service and the individual is employed by that international organisation.
- UK tax charges will apply to a tax-free transfer if, within five tax years, an individual becomes resident in another country so that the exemptions would not have applied to the transfer
- UK tax will be refunded if the individual made a taxable transfer and, within five tax years, one of the exemptions applies to the transfer
- the scheme administrator of the registered pension scheme, or the scheme manager of the QROPS making the transfer, is jointly and severally liable (with the member) to the tax charge and, where there is a tax charge, they are required to deduct the tax charge and pay it to HM Revenue & Customs (HMRC). This applies to scheme managers of former QROPSs that make transfers out of funds that have had UK tax relief if the scheme is a QROPS on, or after, 14 April 2017 and at the time the transfer to the former QROPS is received
- payments out of funds transferred to a QROPS on, or after, 6 April 2017 will be subject to UK tax rules for five tax years after the date of transfer, regardless of where the individual is resident
The new ISA allowance for 2017/18 has risen from £15,240 to £20,000.
From 6th April 2017 any adult aged 18 to 39 will be able to open a new Lifetime ISA. They can save up to £4,000 each year and will receive a 25% bonus on every pound they put in. Bonuses will be added up to the age of 50 and this can be used to purchase a property, or to encash, as with any other investment.
However beware… should the plan benefit not be taken prior to age 60 (or to purchase a property), then the encashment value will include an encashment charge which will effectively cancel out the bonus payment (with any growth or interest) plus a 5% additional charge.
We are fast approaching the end of the tax year so now a good time to think about any unused allowances for both your pensions and ISAs.
Deadlines for making contributions into ISAs and pensions are;
- Monday 20 March for Bed & ISA application (Old Mutual ISAs)
- Thursday 20 March for Bed & ISA application (Nucleus ISAs)
- Monday 27 March for BACS payments and cheques to be sent
If you would like to discuss any of the above changes, or wish to know what your remaining ISA/Pension allowance for 2016/17 is then please contact us.