As might have been expected, the Spring Budget was once again a fairly standard affair, with few major changes to the status quo. However, the announcement of the main Budget being moved to the autumn could leave some wondering if bigger changes are in the pipeline for later in the year.
For now, we can focus on the changes that have been announced and what that means for our clients.
To kick things off, it is always good to confirm the changes to the income tax bands that will come into place on 6th April this year.
It was confirmed that the Personal Allowance will increase to £11,500 from April, with the ultimate aim of increasing this to £12,500 by April 2020. The higher rate band will be increased to £45,000 per year, and there has been no change to the additional rate band.
However, Hammond giveth with one hand and taketh away with the other.
One of the biggest changes made in this budget was the reduction of the dividend allowance. This particular allowance was introduced in April last year, with a tax free allowance of £5,000, and any dividends received in excess of this being taxable based on your marginal rate of income tax.
From April 2018, the tax-free allowance will be reduced to £2,000, which is likely to affect a significant number of people.
If you have any concerns in relation to the dividend tax allowance, please contact your usual financial planner who will be able to advise on your best course of action.
Possibly one of the more controversial announcements was in relation to National Insurance Contributions (NICs) for the self-employed.
The fixed rate Class 2 NIC will be abolished from April 2018. This was a confirmation of an earlier announcement.
In addition to this, Mr Hammond made the new announcement that Class 4 NICs, which apply only to the self-employed with a certain level of earnings each year, will be increasing to 10% in April 2018, then again to 11% in April 2019. This is from the existing level of 9%.
Many news outlets have been quick to point out that this is a direct contradiction of the Tory manifesto, which pledged to not make any increases to personal taxation, including National Insurance.
It would seem the Government have, at least for now, decided there have been enough game-changing alterations to pensions in recent years.
This time, the only big change is the introduction of a 25% charge on pensions being transferred to a Qualifying Recognised Overseas Pension Scheme (QROPS). This is huge for those planning on transferring their pension overseas, but will have no impact on the vast majority of pension holders.
Another point of note in relation to pensions is a review of the State Pension Age. This is already underway and the findings are expected to be published in early May this year.
While the review itself is not a surprise, we will be keeping an eye on the findings and any subsequent changes that arise from it.
Back to the slightly more positive end of the Budget scale with personal savings.
As we already knew, the ISA allowance will be increasing to £20,000 from April this year. This is starting to look very generous and, if at all possible, should be taken advantage of while the opportunity is available. Your personal financial planner will be able to provide specific recommendations should you wish to make use of your ISA allowance.
Although not announced in the Budget, it is also worth noting that the Junior ISA allowance is increasing to £4,128 from April 2018.
From April this year, the new Lifetime ISA will be launched to help those between age 18 and 40 save for their first home or for retirement. The Lifetime ISA has an annual contribution allowance of £4,000 and each year the government will add a bonus of 25% of that year’s contributions. More information about the Lifetime ISA will be coming very soon.
A new NS&I Bond will be available for 12 months from April this year. The Bond promises a rate of 2.2% per year over three years. However, with a limit of £3,000, this is mostly useful for those wishing to put a bit of money away for the short term without any investment risk.
Please note – this blog contains the personal opinions of Kelly Guttridge as at March 9th 2017, and is not intended as financial or investment advice.