This was the last Spring Budget, and with no significant tax or pensions changes that will have any immediate impact for you or your clients, advisers can plan for the tax year ahead with confidence and clarity, writes David Downie of Standard Life’s Techzone.
The last ever Spring Budget was a relatively low key affair. There were no significant tax or pensions changes that will have any immediate impact for advisers or their clients. This means advisers can plan for the tax year ahead with confidence and clarity.
Future Budgets will move to the autumn, with a toned down statement on the economy delivered each March. This will give welcome breathing space between the announcement of Budget changes and their introduction.
A key element of the Budget was focused on making the tax system fairer. The Government is keen to ensure that in the future, however you are remunerated should be broadly tax neutral. So being employed, self-employed or a shareholding director should not provide a tax advantage. Consequently a couple of changes will come into effect from April 2018 that will start to equalize some of the current imbalances in the tax system. Further change could follow once the review of The Review of Modern Employment is published in the summer.
Reduction to the dividend allowance
The annual dividend allowance introduced last year will remain at £5,000 for the 2017/18 tax year, but will then drop to £2,000 from April 2018. In particular, this will hit small and medium sized business owners who take their profits as a dividend.
Employer pension contributions will become an even more attractive way of extracting profits from a business. And if the director is over 55 they can now have full unrestricted access to their pension savings. When accessing any pension savings they may need to consider that the cut to the Money Purchase Annual Allowance may restrict future funding to £4,000 a year. But taking only tax free cash will mean the reduction is not triggered.
Increase in NICs for the self-employed
The self-employed class 4 National Insurance contributions will increase from 9% to 10% from April 2018, with a further increase to 11% from April 2019. This will close the tax gap between the self-employed and employed.
This coincides with the removal of the flat rate class 2 NICs for the self-employed from April 2018.
Self-employed individuals have been eligible for the same flat rate state pension as employees since April 2016, and so the increases will go some way to paying for this.
All in all the Budget had only limited impact on financial advice. But for a full analysis see our Budget Summary - Spring Budget 2017 – what it means for you and your clients
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