Yesterday’s Budget was delivered following much speculation, both in the financial industry and the general media, over what the big changes might be this time. Among these was the question of whether the pension commencement lump sum (more commonly known as tax free cash) would be abolished.
When it came down it to, the speech was markedly less exciting than anticipated. Still, there were a few surprises.
Here I have summarised the points that are most likely to have an impact on our clients and a few points that might be of interest.
The ISA allowance for 2016/17 will be staying at £15,240. However, it was announced that, from April 2017, the ISA allowance will be rising to £20,000.
In 2017 the government will also be introducing a new Lifetime ISA for those under 40. This is similar to the Help to Buy ISA that was introduced in December, but can be used as a retirement savings account as well as for a deposit on your first home.
You will be able to save up to £4,000 into a Lifetime ISA each year and receive a bonus of 25% from the government if the savings are used as a deposit for your first home (worth up to £450,000) or accessed after age 60. The money you put in can be accessed at any time without the bonus and at a 5% penalty.
It is possible that the Lifetime ISA is intended to be a foot in the door towards more pension reforms, so there may be more changes to come.
Capital Gains Tax
From April this year, the Capital Gains Tax rates will be reduced by 8%. That means the basic rate will now be 10% (down from 18%) and higher rate will be 20% (down from 28%).
The exception will be capital gains on either second homes or buy-to-let residential property, for which the tax rates remain at 18% or 28%.
From April 2017, the personal allowance will increase to £11,500, keeping it on track to be at £12,500 by 2020.
The higher rate tax threshold will also be rising in 2017 to £45,000.
From 2018, the government intends to reform Class 4 National Insurance Contributions and remove Class 2 contributions. Both of these contributions are paid by the self-employed. As yet there has been no indication as to how Class 4 contributions will be reformed.
More changes for the self-employed, with plans to make it possible for taxes to be paid on a pay-as-you-go basis from 2018. This change will also apply to businesses and landlords.
A Budget wouldn’t quite feel complete without some changes to pensions. However, unlike previous Budgets, this time the biggest change is to the way individuals can manage their own pensions.
The government intends to fund, create and launch a ‘pensions dashboard’ by 2019 that will allow you to see all of your pensions in a single place. The idea behind this is that you will be able to keep track of all of your pensions, regardless of whether they are current or paid up.
As yet, there are no plans to change the tax relief available or remove the Pension Commencement Lump Sum.
If you have any queries about how the Budget will affect you, or would like more information about the changes, please contact your usual financial adviser.