The Chancellor, Philip Hammond, delivered his first Spring Budget to Parliament on Wednesday 8th March. We’ve been paying close attention to the announcements and how they will impact on our clients. In this article, we’ve highlighted some of the main changes.
Last year, the Chancellor announced that Class 2 National Insurance contributions were to be abolished from April 2018, allowing millions of self-employed individuals to keep more of their money and invest it back into growing their businesses. During this year’s Spring Budget, Philip Hammond announced that from April 2018, there would be an increase in the main rate of Class 4 National Insurance contributions from 9% to 10%, and increasing to 11% from April 2019.
The combined effect of these changes means that self-employed people with profits of below £16,250 will pay less in National Insurance contributions than they do at present. However, those with profits above £16,250 will pay more.
Dividend Tax Allowance
Only a year after the government introduced its new £5,000 Dividend Tax Allowance, the Chancellor has announced that this will be reduced to just £2,000 from April 2018.
As the £5,000 allowance is set to remain in force until April 2018, no immediate action is needed by investors. However, from April 2018, investors should be aware that dividend income over £2,000
will be taxed at the following rates:
• 7.5% (basic rate taxpayers)
• 32.5% (higher rate taxpayers)
• 38.1% (additional rate taxpayers)
This change will mainly affect investors with larger investments and small business owners, who take income from their businesses as dividends.
What was already set to happen from April 2017
We already knew that the beginning of the new tax year was set to bring some significant changes. Here’s a reminder of some of the changes that were previously announced:
Changes to Income Tax
The personal allowance will increase from £11,000 to £11,500 from 6th April 2017. The personal allowance is tapered for those with taxable income of over £100,000, and those with taxable income above £123,000 during the 2017/18 tax year will not receive any personal allowance.
The point at which the higher rate of income tax will apply is set to increase from £43,000 to £45,000 from 6th April 2017.
Revisions to the Money Purchase Annual Allowance (MPAA)
The Money Purchase Annual Allowance (MPAA) is set to be reduced from £10,000 to £4,000 from 6th April 2017.
Introduction of the Residence Nil Rate Band (RNRB)
The RNRB is a new allowance, available on top of the standard nil-rate band of £325,000 (the first part of an individual’s estate on which no inheritance tax is paid.)
The RNRB will be £100,000 in the 2017/18 tax year, increasing by £25,000 pa each year to £175,000 in 2020/21. Couples who qualify will be entitled to a total combined nil-rate band of £850,000 (£425,000 each) in 2017/18, rising to up to £1 million (£500,000 each) in 2020/21.
The RNRB rules are complex, but broadly will apply if:
• an individual dies on or after 6 April 2017;
• they own a property, or a share of one, or have sold a property after 8th July 2015;
• they have personally resided within the property;
• their direct descendants, such as children or grandchildren, inherit the home (or a share of it);
Increase to the Annual ISA Allowance
From 6th April 2017, the annual ISA allowance will increase from £15,240 to £20,000.
The new Lifetime ISA (LISA) will also launch on 6th April 2017. The LISA allows savers aged 18 to 40 to contribute up to £4,000 each year, to which the Government will add a 25% bonus at the end of the tax year. The bonus will be available on contributions paid in until your 50th birthday. Money paid into a LISA will count towards your normal ISA allowance, so if you pay in the maximum of £4,000, you will only be able to pay £16,000 to your other ISAs.
Get in touch to find out more about how the 2017 Spring Budget will affect you
To find out more about how these important announcements may impact on your financial position, please telephone us on 01772 729742 or alternatively, simply fill out our online enquiry form to arrange a meeting with an adviser at Springfield Financial Services.
The information provided is based on our current understanding of the 2017 Spring Budget and associated documents and may be subject to alteration as a result of changes in legislation or practice.