What are the main changes from the 2017 Budget?
Today, Chancellor Philip Hammond delivered the 2017 Budget, which he claims is a plan to ‘prepare Britain for a brighter future’, and help ‘build foundations for a stronger, fairer, better Britain’.
Amongst the new measures that were announced, here are the key changes that could affect you:
- Tax-free dividend allowance to be reduced from £5,000 to £2,000 from April 2018 – may impact people who have investments that generate dividends.
Individuals with investments that generate dividends in excess of £2,000 will have to pay tax at a rate of either 7.5%, 32.5% or 38.1%, depending on their tax position. This does not apply to investments held within an ISA.
Touching on this change, Ben Smith, Technical Services Manager at Skipton Building Society
The Government estimate that 80% of investors will remain within this allowance and have no tax to pay. However, this highlights a greater importance of making the most of your annual allowance.
Other changes reaffirmed…
Personal allowance to rise in April – this is the amount you can earn before you start paying income tax. The Chancellor re-confirmed that the current figure of £11,000 will be increased next month to £11,500, and will rise to £12,500 by the 2019/20 tax year.
*Figures differ slightly for Scotland – the base rate threshold is £32,000 and higher rate threshold is £43,500. The personal allowance remains the same as the UK.
ISA allowance to rise in April – the current contribution limit of £15,240 will increase to £20,000 for the 2017/18 tax year. Income or growth within ISAs are tax-free.
Introduction of the Lifetime ISA – from next month, people between the ages of 18 and 40 will be able to use the Lifetime ISA to buy their first home or help fund their retirement. It will enable people to save up to £4,000 a year tax-free and receive a government bonus of 25% of each contribution – up to £1,000 a year – until the age of 50.
Gareth Smith, Retirement Solutions Manager
There are significant considerations around them – especially around saving for retirement. A workplace pension will often benefit from employer pension contributions, which a Lifetime ISA is unable to. Missing out on these employer contributions could put you at a significant disadvantage when trying to achieve your retirement dreams.
“In addition, should you need access to the money in a Lifetime ISA for reasons other than those stated above, you’ll lose 25% of your savings (which includes any growth you’ve achieved). Therefore, you need to ensure that you won’t need access to this money for anything other than the rules allow.”
Reduction of the Money Purchase Annual Allowance – this is the amount you can save into a pension each year if you’ve flexibly accessed your pension benefits. This year, this amount will be reduced from £10,000 each tax year to £4,000.
Following a new forecast from the Office for Budget Responsibility, the Chancellor announced that inflation is expected to rise to 2.4% in 2017/18, before falling to 2.3% the following year, and to 2% in 2020. Therefore inflation figures are set to remain above the Bank of England’s 2% target for some time.