Richard Porter, independent financial adviser St Albans
Richard Porter IFA St Albans - Budget Highlights affecting financial planning
Thursday 9 March, 2017
Richard Porter, independent financial adviser Lonsdale Services St Albans said: ‘There were very few financial planning announcements in Philip Hammond’s first budget. The key announcements were the changes to National Insurance contributions for the self-employed and a reduction to the dividend tax allowance. Please see below for a summary of the key pension, tax and savings changes announced in the 8th March 2017 budget. The next budget will be held in Autumn 2017.’
Key Pension changes
The government will legislate to reduce the money purchase annual allowance (MPAA) to £4,000 from April 2017. The MPAA restricts the amount of tax relieved contributions an individual can make in a year into a money purchase pension scheme. No changes will be made to how the MPAA operates.
Pension Triple lock
To be reviewed in the next Parliament, so it remains in place until 2020.
Salary sacrifice
After April 2017 any employers/employees using a salary sacrifice scheme to receive non-cash benefits in kind will pay the same tax as if the benefit in kind was received as cash. Please note that taking salary sacrifice instead of employer pension contributions is excluded from this proposal.
Personal Allowance and Higher Rate Threshold
The Personal Allowance will rise from £11,000 to £11,500 in 2017/18. Higher rate income tax will be paid from £43,000 this year, and £45,000 in 2017/18. When the Personal Allowance reaches £12,500 (planned for 2020), it will increase in line with inflation.
Dividend allowance
Dividend allowance will reduce from £5,000 to £2,000 from April 2018. This will reduce the tax difference between the self-employed and those working through a company.
National Insurance contributions: increasing for the self-employed
Currently, the self-employed may have to pay both Class 4 and Class 2 NICs:
• Class 4 NICs at 9% are paid on profits between £8,060 and £43,000
• Class 2 NICs are paid on profits of £5,965 or more
From 2018, Class 2 NICs will be abolished. Class 4 NICs will increase to 10% of profits in April 2018 and to 11% in April 2019.
Taken together, only a self-employed person with profits over £16,250 will have to pay more as a result of these changes. This better reflects the fact that the differences in contributory benefit entitlement between the self-employed and employees are now small, following the introduction of the new State Pension in April 2016.
Savings and investments
Junior Individual Savings Accounts (ISAs) and Child Trust Fund limit
The annual subscription limit for Junior ISAs and Child Trust Funds will be uprated in line with the Consumer Prices Index (CPI) to £4,128.
ISA
The ISA allowance increases from £15,240 to £20,000 from 6th April 2017.
Lifetime ISA (LISA)
The Lifetime ISA will be available from 6th April this year allowing younger adults to save up to £4,000 each year and receive a bonus of up to £1,000 a year on these contributions. Any money invested can be withdrawn tax-free to put towards a first home or saved until a person turns 60.
New National Savings bond
A new savings bond open to anyone over 16 will be available through National Savings & Investment (NS&I) from April 2017. The bond will pay an interest rate of 2.2% gross, and has a term of three years. The maximum that can be invested is £3,000.
Life insurance policies - part surrenders and part assignments
In the Finance Bill 2017 the government will legislate to change the current tax rules for part surrenders and part assignments of life insurance policies to allow policyholders who have generated a wholly disproportionate gain to apply to HMRC to have the gain re-calculated on a just and reasonable basis.
