Today I’m delighted to have a guest blog post from Flora Maudsley-Barton, managing director of Parsonage Financial.
Here’s Flora’s view of yesterday’s Budget.
I have written this with ‘you’ in mind, if you are a fairly-well-off-UK-tax-payer-of-working-age.
Yesterday I was in London, to present on Radio 4’s Moneybox, reacting very quickly to the news in the budget. Today, I find myself waking up with the sense that the party wasn’t quite so good as I thought it was.
So here is my quick summary of some of the budget highlights, with a bit of balance. Who might they be good for? Who might feel that they’re not quite good enough to be of any use at all?
A cut to Capital Gains Tax – But What For?
The Chancellor announced a big reduction in capital gains tax rates which is great. If you own shares in your employers company, but don’t own enough shares to get entrepreneurs relief, this news is great for you.
If you qualify for entrepreneurs relief, the budget was also great for you.
But most people don’t pay Capital Gains Tax, except when they are disposing of a second residential property, it might be a property they have been letting out or it might be as part of the divorce settlement. Unfortunately, they don’t get the new low rate; the Capital Gains Tax improvement doesn’t apply to residential property, apart from your own home.
New Lifetime Individual Savings Account (i) – Less tax back than a pension?
It is definitely good news that you can pay up to £4,000 a year of your own money and have £1,000 a year added to that by the Chancellor, starting April 2017.
The thing is, he already does that. If you put £4,000 a year into your pension, he’ll add £1,000 if you’re a basic rate taxpayer. If you are a higher rate taxpayer you save £2,000. If you pay 45% tax, it’s £2,250.
New Lifetime Individual Savings Account (ii) – Still restricted on withdrawals
The lifetime Individual Savings Account brings the very valuable change that you can get the money before you retire if you need it. I do understand the aim of this development; a lot of people I talk to would do more pension funding, if they could get the money when they need it in a lump sum.
The thing is, you can only use the lifetime Individual Savings Account either to buy your first home or to retire. There are already a lot restrictions, and we’ve only seen the headlines yesterday, the detail is still to come. I fear that most people will find those rules just too restricting.
New Individual Savings Account Allowance – Wait, no! It’s 2 allowances stuck together
The Individual Savings Account allowance is going up again! We’re getting a jump in the Individual Savings Account allowance in April 2017 up to £20,000. Unfortunately, that £20,000 includes the allowance that you can put into the new Lifetime Individual Savings Account.
Lifetime Individual Savings Account Limit – Is it enough to tempt the providers?
The maximum contribution to your new Lifetime Individual Savings Account is £5,000 per year (adding together they payment and the bonus from the tax). If I were a pension, investment company or a bank, I would be working out how much it costs to build, offer, and advertise this new product. I’d compare that with how many people will sign up, and how much they can put in, and I might wonder if it’s worth it.
I’ve seen this before with Junior Individual Savings Accounts. They’re brilliant, I love them but the providers put them at the back of the queue for any development.
My Bonus Budget Party Pooping Point
This is more of a warning; we did expect the pensions tax relief regime to be hit in this budget and it hasn’t been. The Treasury has made it clear that pension tax relief costs too much money. What is next, I wonder.
I hope you have found this useful. The facts are facts, but the comment is my opinion, Whatever you do next, please take time to plan wisely.
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