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As Prime Minister Teresa May gave way to her “strong hand on the fiscal tiller” Chancellor Philip Hammond, some were holding their breath fearing more changes to pension tax relief, ending of the State Pension ‘triple lock’ or even a reversion to the mooted 10% death tax proposed by former Prime Minister Gordon Brown’s Government. Thankfully, however, this was a bit of a non-event for financial services with very little introduced to affect financial planning.
Probably the most talked about announcement has been the stepped increase to National Insurance contributions for the self-employed, rising from 9 to 10% from April 2018 and again to 11% from April 2019. Some had predicted an immediate matching of the 12% rate paid by the employed, but there is still a disparity – perhaps to acknowledge that the self-employed do not generally have the comfort of sick pay? This is, of course, also somewhat offset by the removal of Class 2 National Insurance Contributions from 2018.
From a financial planning perspective, the biggest shock is a reduction in the personal Dividend Allowance from £5,000 to £2,000 per annum from April 2018. This is generally only going to affect private investors with more than £50,000 invested outside of an appropriate tax wrapper (such as an ISA) but will have an impact on those who take a nominal income from their business and top up with dividends.
There was an announcement of a new 3-year term National Savings Bond with a gross interest rate of 2.2% from April 2018 with a maximum investment of £3,000. Given that the Office of National Statistics reports the January 2017 inflation rate as 1.6%, this is at least an inflation beater for preserving some capital.
There was, however, some ‘devil in the detail’ as transfers to overseas pensions (aka QROPS) will now have an immediate 25% tax rate applied at transfer and will be subject to UK tax for the 5 years following (unless the transfer is to a country in the European Economic Area where the member will also reside). This is an immediate action and not delayed until April 2017.
In conclusion, it is probably more poignant to highlight the changes we were already aware of from April 2017 as below:
As always some of these policies could still be subject to change prior to becoming legislation.
Financial planning is an inherently personal process and there is no time like the present to plan for tomorrow. We would be delighted to start planning for your peace of mind.