No budget, but we still get some changes
12 March 18  /  News

The Treasury recently confirmed that the Spring Budget will be more of a ‘State of the Nation’ announcement. In their words.

“There will be no red box, no official document, no spending increases, no tax changes. The chancellor will publish updated economic forecasts - we expect the speech to last between 15 and 20 minutes.”

We can’t say that we are disappointed to lose the March Budget. Press comment about what the Chancellor would or wouldn’t change always caused a little bit of tension. Whilst there are still changes happening, we do now have a little more time to deal with them.

This forthcoming year sees amendments to some of the key allowances, all of which ensures that good planning is more important than ever. Whilst there is an increase to the Personal Allowance (£11,850 from £11,500), there are three other key changes to allowances that will come into effect from April 6th 2018, which we would like to draw to your attention.

Firstly, let’s deal with the bad news.

Dividend Allowance is reduced from £5,000 to £2,000.
This will affect directors of limited companies and those who hold significant investment outside of an ISA or pension wrapper. Directors will need advice around their current and future remuneration strategy. They should be asking whether a combination of dividends, salary and employer contributions into their pension would be more suitable. Even with the reduced dividend tax free allowance, company directors should still find that dividends will be slightly more attractive than taxable income due to the national insurance savings they provide. But in the longer term, it may be that a different remuneration package which includes higher Employer Pension contributions will be more beneficial. Once again, planning is clearly an important aspect.

Any investors affected by this may have to consider investments that pay a lower yield in the future, and it is clearly more important than ever to take advantage of the ISA allowance, which is unaffected by the Dividend Allowance.

And so to the good news.

Residence Nil Rate Band increases from £100,000 to £125,000.
This is the new IHT allowance, launched in April 2017, which aims to take some or all of your home outside of IHT. The plan was always to introduce this on a Tapered basis, so that by 2021, the allowance should be at £175,000. Add this to the IHT Standard Nil Rate Band of £325,000, it provides a married couple with a notional IHT allowance of £1M (£500,000 each).

Whilst this is broadly good news, the devil is in the detail. There are caveats concerning the ability to only pass the home to your direct descendants, rather than other family members and also very complicated rules on downsizing. Add in a further level of tapering for estates above £2M and it is clear that careful planning is required to benefit fully from this.

Pension Lifetime Allowance (LTA) increases from £1,000,000 to £1,030,000.
The Pension Lifetime Allowance is the maximum level that people can withdraw from their pension in total without paying a LTA charge. For the first time since 2010, the allowance has increased, with indexation being added to the calculation when it was last reduced two years back. A 3% inflation rate means that we now benefit from an increased Lifetime Allowance level.

For those affected by the LTA, this is good news. It means increased Tax Free Cash and the opportunity to withdraw more pension before the LTA charge takes effect. Additionally, if you are looking to withdraw money from your pension, it may be wise to wait until after 5th April, as it means that the amount, when calculated as a percentage against the LTA, will be slightly less.

This Government remain committed to not reducing direct tax levels, but they are clearly finding other ways to amend the tax take. Part of our Planning process is to see how we can take advantage of these and other allowances. With the end of the Tax Year nearly upon us, we will discuss any final opportunities that may become available before we head into Tax Year 18/19 and start working with the new allowance levels discussed above.

If you have any questions concerning any of these matters, please do not hesitate to contact us.