It was a Budget of few surprises. Chancellor Philip Hammond’s hour-long Budget speech featured familiar topics and soundbites about the government’s spending plans. But below the headlines about abolishing stamp duty for first time buyers on properties below £300,000, how will your personal finances be affected?
Hammond has announced some changes that might impact on your wealth. Whilst equally there are some important things he didn’t say, which could also influence your financial future.
Pension lifetime allowance increased
As expected, the pension lifetime allowance increased by 3%. At the moment you can hold up to £1 million in pension savings; from April 2018 it will be £1,030,000.
Although this £30,000 increase might seem relatively small, over the 2016/17 tax year more than 2,500 people exceeded their lifetime allowance – landing them an average tax bill of £46,332.
Gareth Smith, Skipton’s Retirement Solutions Manager added,
Over the last decade pension savers have seen the lifetime allowance reduce from £1.8 million to £1 million, so today’s announcement is welcome news. It confirms the government’s previous intentions that the Lifetime Allowance will rise from the 2018/19 tax year, in line with the Consumer Price Index (CPI), for this and future tax years. This confirmation enables our customers to better plan for their retirement.
ISA allowance to remain at £20,000
Next year’s ISA allowance will be frozen at the current level of £20,000.
Ben Smith, Skipton’s Technical Services Manager stated,
In the past annual ISA allowances has risen in line with the rate of inflation, although the increase to £20,000 last year was a substantial rise.
Any opportunity to reduce the amount of tax you pay on your returns is welcome, so it’s disappointing the Chancellor has opted against increasing the allowance on this occasion. However, there’s no doubt your ISA allowance remains a hugely valuable benefit that should be considered each and every tax year.
Inheritance tax revenue is set to rise faster than forecast
Earlier this year we saw welcome changes to inheritance tax rules, aimed at reducing the amount of families who face this tax. They’ve not made any further changes to inheritance tax rules. However, figures within the Budget show annual revenue is set to climb higher than forecasted.
£5 billion had been expected to be collected this tax year, but that’s now been revised upwards to £5.3 billion. Between the 2017/18 and 2021/22 tax years, the amount predicted to be raised was £27.7 billion. However this has now been re-forecasted to £28.5 billion.
Mark Butterworth, Head of Financial Advice Support, stated,
It can be dangerous to assume that the new inheritance tax rules mean your family won’t face an inheritance tax bill. The amount raised over the 2016/17 was a record high, and these latest Budget figures show this is set to continue.
If you are unsure how the new rules work, or if your estate might trigger an inheritance tax liability, we’re available to speak to for guidance and any advice you might need.
Personal income tax allowances rise again
The annual amount you can earn before paying tax will increase from £11,500 is £11,850. And the higher income tax threshold – the amount you can earn before paying 40% tax – will rise from £45,000 to £46,350.
This applies to all of the UK apart from Scotland. We are still awaiting confirmation of Scotland's personal income tax allowances.
No changes to pensions tax relief
Despite another round of media speculation in the build up, Hammond opted against making amendments to pensions tax relief.
If you’re a basic rate tax payer you will benefit from receiving £100 in your pension pot for every £80 you pay in – that’s an instant 25% gain, before it is even invested. If you are a higher rate taxpayer, tax relief is of even greater benefit. To receive £100 in your pot, it will only cost you £60 provided you claim for it. There are, however, important tax considerations around making withdrawals.
Gareth Smith continued, “Tax relief remains a huge incentive for saving into a pension – even if it’s not specifically to generate an income in retirement. We would have been very disappointed by any moves to reduce this valuable advantage.
“That said, it doesn’t mean there won’t be future moves to change these favourable rules. So it makes sense to make the most of these valuable benefits while you can, with financial advice recommended to build a tax-efficient strategy for your needs.”
State pension goes up
In line with the triple lock commitment, the state pension will increase by 3% from April 2018.
- Currently, the basic state pension pays £122.30 a week, and this will rise to £125.95.
- The flat rate state pension pays a maximum of £159.55 a week, but this will rise to £164.35.
Gareth concluded, “We are disappointed not to see clarity surrounding some of the amendments proposed in the previous Budget and dropped from the Finance Act 2017. These include the reduction to the Money Purchase Annual Allowance and the reduction in the Dividend Allowance.
“We anticipate that these will be brought in however the legislation hasn’t been passed by the government.”