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How Could The Budget Impact On My Financial Planning?

Ahead of the Autumn Budget on 22 November we take a look at some of the key financial planning areas that the Chancellor may focus on and consider the importance of regularly reviewing your financial planning strategy.

ISA

The increase in ISA contribution limits from £15,240 to £20,000 only took effect in April 2017, so any change beyond a Consumer Price Index (CPI) linked increase looks unlikely. None the less ISAs remain a fundamental part of any tax efficient planning strategy and should be reviewed on an annual basis.

Capital Gains Tax (CGT)

George Osborne’s decision to cut CGT rates (other than for carried interest and residential property) from 18% for gains falling within the basic rate tax band/28% above this level, down to 10%/20% respectively, came as a complete surprise in his last Budget in 2016. Mr Hammond could choose to bring this under review but would he do this following such a recent change?

The annual CGT exemption, currently £11,300 (2017/18), generally increases each tax year in line with CPI and we would anticipate this to be much of the same.

Whilst there may be no significant changes in this area regular capital gains tax planning is a key part of any portfolio management strategy and with the annual exemption unable to be carried forward to future years this area should be regularly reviewed.

Dividend Taxation

From April 2016 the dividend tax credit was replaced by the tax-free dividend allowance. The introduction of the dividend allowance means that you currently don’t have to pay tax on the first £5,000 of your dividend income.

It has already been announced that the dividend allowance is to be cut from £5,000 to £2,000 from 2018/19, but an announcement of a further cut to zero is possible. Now could therefore be a sensible time to review your income/remuneration planning to ensure it is as tax efficient as possible, under the new regime.

Pension Tax Relief

It has been widely speculated that the Chancellor may make changes to the pension tax relief system. With the cost of tax relief on pension contributions totalling £38.2bn in 2015/16 (latest data available), a rise of 9.5% on 2014/15, this cannot help but be a tempting target for Mr Hammond as he considers his Autumn Budget.

If we also factor in that in 2018/19 automatic enrolment will be fully in force (it was not in 2015/16) with contributions set to be 150% higher than now, at 5% rather than 2% of band earnings, the temptation to do something is all the greater.

Whether this will be a change to a flat rate tax relief system, a reduction in the annual allowance , or no change at all it could be sensible to arrange any planned contributions ahead of the Budget, particularly for higher or additional rate tax payers.

Pension Lifetime Allowance

 Following the reduction in the Lifetime Allowance to £1 million in April 2016 it was also announced that this level would increase with effect from 2018/19 tax year, in line with the CPI. Following the Office for National Statistics announcing that the CPI for the 12-months to September 2017 was 3% it could be the case that the lifetime allowance for 2018/19 may increase to £1,030,000.

For those individuals who may have pension benefits through final salary pension schemes, it is often forgotten that the capitalised value of such a benefit is calculated at 20 x the gross income payable in retirement, plus any tax free cash taken. It is often thought that this calculation could be viewed as more favourable for those in final salary schemes, compared to those with money-purchase schemes, so perhaps we could see an adjustment to the calculation to bring the two more in line.

Summary

As we wait in anticipation for Mr Hammond’s budget statement it provides an opportune time to review your planning.

For more information, or to review your current financial planning strategy, please contact Sam Hawarden on 01772 555073 or email sam.hawarden@taypat.co.uk

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