As George Osborne revealed
his 7th budget this week, our adviser Steve Ansell explores what this
announcement could mean for our clients.
Tax and Personal Tax changes
The chancellor reported that there would be no increase in VAT, national insurance or income tax.
The basic rate threshold is to increase to £11,000 next year and to £12,500 by 2020 (meaning no tax payable on the first £12,500 of earnings) and the 40% threshold is to rise to £43,000 from April 2016, a small step towards the £50,000 target indicated. This will reduce the number of clients moving into higher rate tax. It will benefit those taking income draw down from their pensions allowing an increase in income without a higher tax liability.
This also means that our working clients will have more disposable income.
Inheritance Tax
Tax and Personal Tax changes
The chancellor reported that there would be no increase in VAT, national insurance or income tax.
The basic rate threshold is to increase to £11,000 next year and to £12,500 by 2020 (meaning no tax payable on the first £12,500 of earnings) and the 40% threshold is to rise to £43,000 from April 2016, a small step towards the £50,000 target indicated. This will reduce the number of clients moving into higher rate tax. It will benefit those taking income draw down from their pensions allowing an increase in income without a higher tax liability.
This also means that our working clients will have more disposable income.
Inheritance Tax
With regards to inheritance tax there's good news for most of our
clients.
The nil rate band will increase by an additional £175,000 and will be known as the family home allowance. This will allow savers to downsize, which will then give them a form of Inheritance Tax credit. The individual nil rate band will increase from the current level of £325,000 (which has not been changed since 2009) to £500,000, giving husband and wife a total allowance of £1m before any tax which is charged at 40% above the nil rate band.
This I believe will be a substantial benefit to our clients as the value of property continues to increase. However, this is a complex area of financial planning and I would always recommend seeking professional advice.
Corporation Tax and Minimum Wage
Good news for businesses and limited companies as corporation tax is set to reduce to 19% and further again to 18% which will mean less tax on gross profits. However these changes won't be implemented for a couple of years.
Minimum wage, which the chancellor referred to as 'national living wage', will increase to £9 an hour by 2020 giving further tax free income to individuals on the minimum wage as the personal allowance rises.
On the whole an estimated 2.5 million people will have an average £5,000 pay rise over five years.
The nil rate band will increase by an additional £175,000 and will be known as the family home allowance. This will allow savers to downsize, which will then give them a form of Inheritance Tax credit. The individual nil rate band will increase from the current level of £325,000 (which has not been changed since 2009) to £500,000, giving husband and wife a total allowance of £1m before any tax which is charged at 40% above the nil rate band.
This I believe will be a substantial benefit to our clients as the value of property continues to increase. However, this is a complex area of financial planning and I would always recommend seeking professional advice.
Corporation Tax and Minimum Wage
Good news for businesses and limited companies as corporation tax is set to reduce to 19% and further again to 18% which will mean less tax on gross profits. However these changes won't be implemented for a couple of years.
Minimum wage, which the chancellor referred to as 'national living wage', will increase to £9 an hour by 2020 giving further tax free income to individuals on the minimum wage as the personal allowance rises.
On the whole an estimated 2.5 million people will have an average £5,000 pay rise over five years.
Pension Savings
With the average life expectancy improving every year it seems crazy that the government want to limit the amount we can save into pensions; however pensions seem to be the easy target when it comes to balancing the budget and so the lifetime allowance continues to fall. For example in 2010 the allowance was £1.8m.
The lifetime pension allowance is to be reduced from £1.25m to £1m. This is the amount of pension fund that can be held without any additional tax charge, currently 55% on pension savings above the lifetime allowance.
Applying for protection may be the answer for clients moving closer to this level of pension savings. The maximum contribution that will receive tax relief per tax year is £40,000.
There are other tax efficient solutions to pension savings that our advisers can discuss with you, for example utilising family member allowances as well as your own would result in a tax efficient solution.
The Chancellor indicated further possible changes to pensions treating them the same as an ISA. You’re taxed on income and the money invested so why should you have to pay tax when you withdraw money from your pension?
Of course in the ever changing world of pensions we will have to wait and see what happens.
With the average life expectancy improving every year it seems crazy that the government want to limit the amount we can save into pensions; however pensions seem to be the easy target when it comes to balancing the budget and so the lifetime allowance continues to fall. For example in 2010 the allowance was £1.8m.
The lifetime pension allowance is to be reduced from £1.25m to £1m. This is the amount of pension fund that can be held without any additional tax charge, currently 55% on pension savings above the lifetime allowance.
Applying for protection may be the answer for clients moving closer to this level of pension savings. The maximum contribution that will receive tax relief per tax year is £40,000.
There are other tax efficient solutions to pension savings that our advisers can discuss with you, for example utilising family member allowances as well as your own would result in a tax efficient solution.
The Chancellor indicated further possible changes to pensions treating them the same as an ISA. You’re taxed on income and the money invested so why should you have to pay tax when you withdraw money from your pension?
Of course in the ever changing world of pensions we will have to wait and see what happens.
If any of the budget announcements effect you, we would be
happy to discuss your situation further.
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