Budget reaction – EQ Investors:
- Reduction in tax-free dividend allowance from £5,000 to £2,000 in 2018 again highlights why the first step should always to be use fill your ISA and consider a SIPP. The new £20,000 allowance should cushion some of the blow. It could be argued that it should be abolished altogether, but this could bring lots of people into self-assessment with tiny shareholdings having to pay 7.5% tax. Would ‘making tax digital’ cope?
- Government wish to address the differential tax treatment between employees and the self-employed for those earning the same amount. It could be argued that it makes sense, given single-tier state pension and the review will look at the differences in other benefits, such as maternity leave and sick pay. Class 2 National Insurance contributions will be abolished from April 2018 and Class 4 NICs will rise by 1% to 10% from April 2018 and 11% from April 2019.
- For transfers from UK pensions to QROPS (overseas pensions) after 9 March 2017, there will be a 25% tax charge which will be deducted before the transfer completes. Whilst it might look penal, it makes sense to claw back UK tax relief. This plays to the government’s message about everyone paying their fair share of tax. Overseas pensions are there to help those that are genuinely moving overseas and want the option to restructure their savings. It will stop the fraudulent schemes and advisers that are encouraging people with no intention of ever leaving the UK to try to avoid future UK taxes.
The pension system, once again gets a little less generous:
- After a huge number of changes to pensions in recent years, it’s a relief that there are no further changes for now. However, those with high incomes will be increasingly be restricted on pension funding as a result of the tapered Annual Allowance.
- The amount permitted using ‘carry forward’ (using unused allowance) will reduce in April. The 2013/14 tax year will fall out of the three-year period. That’s important because the annual allowance in 2013/14 was £50,000. After that it fell to £40,000, its current level.
- No change to Money Purchase Annual Allowance which will reduce from £4,000 from £10,000 next month if you have accessed pension freedoms. This will make retirement planning tricky for when your personal circumstances change.