Budget Summary focussing on financial planning
On Wednesday 22nd November, Philip Hammond delivered a fairly underwhelming budget, characterised by minimal change against a backdrop of uncertain economic conditions – the following is a summary of the impact to the areas of financial planning which have a direct impact on most people – Pensions and Tax Efficient Investment planning.
Pension tax relief: The good news is that despite some speculation, no changes were announced to pension tax relief. Pension saving remains protected from the impact of reforms to salary sacrifice/exchange introduced in 2017/2018. The Tapered Annual Allowance remains in place and Finance (No 2) Act 2017 had already confirmed that the previously announced reduction in the Money Purchase Annual Allowance from £10,000 to £4,000 applies from 6 April 2017.
Annual Allowance: No changes were announced to the £40,000 standard Annual Allowance.
Money Purchase Annual Allowance: The Money Purchase Annual Allowance (MPAA) remains at £4,000 for 2018/2019.
Higher earners Tapered Annual Allowance: The Tapered Annual Allowance remains in force and applies to those with both 'adjusted income' of more than £150,000 and 'threshold income' of more than £110,000. It reduces the Annual Allowance by £1 for every £2 of adjusted income above £150,000 subject to a maximum reduction of £30,000.
Lifetime Allowance: The Lifetime Allowance increases in line with Consumer Price Index (CPI) inflation to £1,030,000 for 2018/2019.
As a reminder, it’s still possible to apply for Fixed Protection 2016 and Individual Protection 2016, via an online application process. Those applying for Fixed Protection 2016 needed to have ceased contributions/benefit accrual by 5 April 2016. Those applying for Individual Protection 2016 needed a fund value of more than £1 million as at 5 April 2016.
Those affected by the Tapered Annual Allowance may be able to use carry forward to make a large enough personal contribution to restore the full Annual Allowance for this tax year, by reducing threshold income to below £110,000.
This can provide an opportunity for those who are likely to be affected by the Tapered Annual Allowance to maximise their Annual Allowance and carry forward.
The reduction in the MPAA to £4,000 from 2017/2018 will continue to affect those taking benefits at an early age, who will have less ability to rebuild their pension funds.
Tax efficient investments
Lifetime ISA: No changes were announced to the Lifetime ISA (LISA) scheme. Since April 2017, adults aged under 40 have been able to open LISAs. They can save up to £4,000 a year from age 18 to 50, receiving a 25% Government bonus on their contributions. Contributions count towards the ISA limit for 2018/2019.
ISAs: The main ISA subscription limit remains at £20,000 for 2018/2019. The subscription limit for Junior ISAs and Child Trust Funds is increasing in line with CPI inflation from £4,128 for 2017/2018 to £4,260 for 2018/2019. Personal Savings Allowance.
The personal savings allowance remains £1,000 for basic rate taxpayers, £500 for higher rate taxpayers and £0 for additional rate taxpayers for 2018/2019.
The LISA remains particularly attractive for younger self-employed individuals, who can’t benefit from employer contributions to workplace pensions and whose fluctuating earnings can make it difficult to predict relevant UK earnings.
For financial planning advice or to discuss changes to your portfolio in light of the budget please contact Adam….