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Budget 2017: how does it affect you?

Last week marked Chancellor Philip Hammond’s first spring Budget (and incidentally last, as he’s moving the Budget to autumn) and as predicted by most, it was a relatively quiet affair.
 
Mr Hammond took just short of an hour to outline the Government’s plans to steer the economy through Britain’s exit from the European Union, while preparing for ‘a brighter future’.
 
Whilst the OBR has upgraded its forecast for growth next year from 1.4% to 2%, a number of measures such as tax increases for the self-employed and a reduction in tax-free dividend allowance will come as a blow to others. Whilst this won’t affect everyone, perhaps the first increase in duty on beer and wine in five years will...
 
Here’s our summary of the key points you need to know:
 
National Insurance for the self-employed
  • National Insurance contributions for the self-employed are set to rise by 2% by 2019
  • This will happen via a 1% rise from April 2018, followed by a further 1% rise in April 2019 (reaching 11% at that time) 
  • At present, employed workers pay “Class 1” NI at 12% on earnings between £8,164 and £45,000, whilst self-employed workers pay “Class 4” NI at 2% on earnings over £45,000
Estimations suggest that around 1.6million higher earning, self-employed people will see bills increase by nearly £50 per month.
 
Whilst the rate of tax has increased, this does now give the self-employed access to the same state pension as employed people.
 
As of 15 March, Philip Hammond stated that there would be no hike to national insurance contributions for the self-employed. Mr Hammond was accused of breaking a general election manifesto commitment not to put up National Insurance, income tax or VAT.

Tax-free dividend allowance
 
The tax free dividend allowance is being reduced from £5,000 to £2,000 per year from April 2018
 
Mr Hammond put forward the argument that those who benefit most from this allowance are either director-shareholders, who pay themselves in dividends along with a small salary, or wealthy savers with share portfolios of more than £50,000.
 
Other commentators say that this could be a disappointment to those who are relying on this income in their retirement.
 
However, some experts say that could be addressed by the £20,000 Isa available from April.
 
Income tax
  • The current personal allowance of £11,000 will rise to £11,500 from April 6 this year
  • The threshold for higher-rate tax, at present due on earnings of more than £43,000, will rise to £45,000 also from April 6 this year. However, due to devolved powers this change will not happen in Scotland – it will remain at £43,000
The rise in personal allowance means that an estimated 400,000 people, including a number of pensioners, will be taken out of tax as a result.
 
Capital Gains Tax
 
From 6 April 2017, CGT remains unchanged at 10% for non, starting rate and basic rate tax payers, and 20% rate for higher and additional rate taxpayers

The ‘old’ 28% and 18% rates however will continue to apply for carried interest and for chargeable gains on residential property, such as buy-to-let properties. The sale of a main residence which has been the individual's only or main residence throughout ownership, however, will still qualify for principal private residence relief, meaning any gain would be exempt from CGT.

The annual exempt amount will rise from £11,100 to £11,300 for individuals and from £5,550 to £5,650 for most trusts.   
 
The consumer price index (CPI) will continue to be used as the default indexation assumption for increasing the CGT annual exempt amount each year.

Gains which qualify for entrepreneurs' relief continue to be taxable at 10%.

Insurance Premium Tax
 
The standard rate of Insurance Premium Tax (IPT) will be increased from 10% to 12% from 1 June 2017. This increase means that the rate will have doubled from 6% to 12% in less than two years.
 
Pensions – Money Purchase Annual Allowance
 
As originally announced in the 2016 Autumn Statement and as subsequently confirmed in the Government’s Policy Paper, the government does not consider that earners aged 55 and over should be able to enjoy double pension tax relief on recycled pension savings, but does still wish to offer some scope for those who have needed to access their savings ‘flexibly’ to subsequently rebuild them. Legislation will be introduced in Finance Bill 2017 to reduce the Money Purchase Annual Allowance from £10,000 to £4,000, from 6 April 2017. 

The government will publish its response to the MPAA consultation on 20 March 2017 but there will be no changes made to how the MPAA currently operates.   

Pensions – State Pensions
 
The Basic State Pension for people with an adequate national insurance record who attained SPA before 6 April 2016 will increase from £119.30 to £122.30 a week for a single person, and from £190.80 to £195.60 a week for a couple.
 
The minimum income guarantee for Pension Credit will also be increased from £155.60 to £159.35 a week for a single person, and from £237.55 to £243.25 a week for a couple.
 
For anyone reaching SPA on or after 6 April 2016, the full rate of the New State Pension in 2017/18 for people with an adequate national insurance record is £159.55 a week (increased from £155.65 a week in 2016/17).   
 
The Budget announced no further changes to the planned increases in State Pension Age which will be equalised at age 65 for men and women in November 2018, and will then rise from 65 to 66 for both men and women in October 2020.
 
SPA will then rise from 66 to 67 between April 2026 and April 2028 with further increases likely to be in line with increased longevity. 
 
Investments – Individual Savings Accounts
 
Adult ISAs
 
From 6 April 2017, the annual subscription limit for ISAs will rise from £15,240 to £20,000.
 
Junior ISAs
 
The annual subscription limit for junior ISAs will also rise from £4,080 to £4,128.   
 
The Lifetime ISA
 
As originally announced in last year’s 2016 March Budget, from 6 April 2017 UK resident adults aged 18 or over (but under 40 on 6 April 2017) will be able to open a Lifetime ISA (LISA) and contribute up to £4,000 in each tax year with the government adding a 25% bonus to the amount saved. In the first year only, the bonus will be paid at the end of the tax year, after which it will be paid monthly. 
 
Like an ordinary ISA, all income and gains made within a LISA (as well as all withdrawals made) will be free of Income Tax and CGT, with the maximum amount of £4,000 pa that can be saved within a LISA counting towards the overall £20,000 ISA subscription limit.
 
Savers can make contributions from the age of 18 up to the age of 50 although given that the principle purpose of a LISA is for the proceeds to be used to either (a) purchase a first home or (b) provide them with funds to help them in their retirement after they have attained age 60, this means that if (and unless the saver is in serious ill-health) the money is withdrawn for any other purpose, the 25% government bonus will be withdrawn and the proceeds will also incur a 5% charge.  
 
Salary Sacrifice
 
As announced in the 2016 Autumn Statement, the tax and employer National Insurance advantages of salary sacrifice schemes will be removed from 6 April 2017 except for arrangements relating to pensions (including advice), childcare, cycle to work and ultra-low emission cars.
 
This will mean that employees swapping salary for benefits will pay the same tax as the vast majority of individuals who buy them out of their post-tax income. Arrangements in place before April 2017 will be protected until April 2018 and arrangements for cars, accommodation and school fees will be protected until April 2021.
 
There were no changes to plans for some key areas such as inheritance tax, pension tax relief and tax related to buyers of second homes, additional properties or buy-to-lets.
 
As always, Central Investment strongly advises speaking to your financial advisor if you have any queries on how this year’s spring Budget might affect you. Our experienced team can offer impartial advice on all the issues raised and measures announced, to help you plan for your financial future.
 ltat
Last week marked Chancellor Philip Hammond’s first spring Budget (and incidentally last, as he’s moving the Budget to autumn) and as predicted by most, it was a relatively quiet affair.
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