We have now heard the first Budget from the new Chancellor, Philip Hammond, which is also intended to be the last Spring Budget. It has been widely agreed that it was a relatively ‘boring’ one, but as always there are a number of changes to be brought in, both from this Budget and confirmation of some changes previously announced.
National Insurance contributions for the self-employed - The most noteworthy change has come in the form of an increase in National Insurance (NI) contribution rates for the self-employed (Class 4). These will increase from 9% to 10% in April 2018 and then to 11% in April 2019. This will apply to individuals generating an annual profit of more than £8,060. It is estimated that the change will cost those affected an average of an additional 60p per week.
Dividend income allowance – It was only in April 2016 that the dividend allowance was introduced, allowing individuals to earn £5,000 of dividend income before paying any tax. This allowance has now been significantly reduced to just £2,000 per annum and will come into force in April 2018.
Income tax allowances and bands – A change already announced was an increase in the personal allowance from £11,000 to £11,500 from April 2017. This change has been kept, and so has the proposed increase to the higher rate tax threshold. From April 2017 this will increase the amount that can be earned before paying higher rate tax from £43,000 to £45,000. The Government has also promised that the personal allowance will increase to £12,500 by 2020-21.
The Money Purchase Annual Allowance (MPAA) – The MPAA was introduced at the same time as the pension freedoms in April 2015. If you have accessed your pensions ‘flexibly’ since then, you are restricted as to what you can pay into a pension. This was set at £10,000, but is now to be reduced to just £4,000 per annum.
Lifetime ISA – Another measure previously announced is the Lifetime Individual Savings Account (LISA). Due to be introduced in April 2017, this will allow those aged 18- 40 to set up an ISA account and benefit from a 25% government uplift. With an overall allowance of £5,000 per annum the accumulated pot can then be used to either purchase a first property or left until age 60. Care should be taken however, as the penalties for accessing the money for any other reason are quite harsh.
Residential Nil Rate Band – There were no changes to the introduction of the Residential Nil Rate Band (RNRB). This is an additional allowance when calculating an inheritance tax liability. In addition to the standard allowance of £325,000 per person, there will be a further £100,000 in respect of your residential home. This relief is scheduled to increase to £175,000 by 2020-21, such that a couple could potentially have an allowance of £1m before paying inheritance tax on death.
National Savings Bonds – The Government is pressing on with its previously announced NS&I bond. It offers savers a return of 2.2% per annum over its three year term. The maximum investment into the account is just £3,000, which may put a number of people off, as will rising inflation and the prospect of interest rate rises.
Of course, if you need any help with the above points, or any other matters relating to the recent Budget, please do not hesitate to contact your financial adviser at NW Brown.
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