It has been over a week (October 29) since Chancellor Philip Hammond delivered his last Budget before Brexit. We ask experts what this Budget potentially means for financial advisers and their clients.
Vince Smith-Hughes, retirement expert at Prudential, says: There may be some devil in the detail but it seemed a broadly positive Budget for financial planners. The announcement on IR35 could represent a tax increase for some contractors, necessitating advisers and accountants to review remuneration structures for the people affected.
The additional funding for the housing infrastructure fund could lead to a boost for mortgage advisers, which is to be welcomed. Confirmation of the raising of the personal allowance and the higher rate thresholds next year is also to be welcomed – hopefully enabling many of the 32 million people that were quoted to consider further saving for retirement and other life events.
The apparent lack of change in relation to pension rules is to be welcomed. Many of the rules such as the tapered annual allowance and lifetime allowance rules are already fiendishly complicated. Advisers should ensure that they are maximising the opportunities that exist for some clients here – this lack of tampering is unlikely to last forever.
Increasing personal allowances will hit high earners
Les Cameron, tax expert at Prudential, says: The bringing forward of the £12,500 personal allowance and £50,000 higher rate threshold will be welcome to those on lower incomes but we mustn’t forget that increasing personal allowances are bad news for higher earners. Those with incomes over £100,000 will see an effective tax rate of 60% on £25,000 of their incomes.
Increase in high-rate tax thresholds means more people qualify for higher rate tax relief on pensions
The acceleration of the higher rate threshold means more people qualifying for higher rate tax relief on pensions – £100 of pension will be costing them £60 instead of £80.
Pensions Lifetime allowance increase welcome
Vince-Smith-Hughes, retirement expert at Prudential, says: Confirmation of the increase in lifetime allowance is welcomed. More individuals will need lifetime allowance advice as some DB transfers have put people over the limit.
£5.5bn inheritance tax bill to boost demand for financial advice
Budget figures show revenue from inheritance tax has hit £5.5bn this tax year and forecasts are showing a continuation of the trend of continuing receipts.
Les Cameron, tax expert at Prudential, says: Given the OTS report into IHT commissioned by the Chancellor it’s a little surprising we didn’t hear anything in this area – although the Red Book has indicated that we are still going to see the long awaited consultation on the taxation of trusts.
What’s not surprising is the figures are predicting further increases to just under £7bn in 2023/24. Inheritance Tax (IHT) planning should continue to be a booming area of financial advice. Government estimates show the trend of rising IHT receipts has continued.
We’ve breached £5bn for the first time and they will hit £6.9bn in 2023 and this should only increase consumers’ demand for inheritance tax planning. We should also remember the £3,000 gifting allowance has been frozen for over three decades so the earlier you start using it the more wealth you can pass on to your family.
One of the key things when IHT planning and gifting is ensuring the right blend of access and control you need on the money. If you’re happy that you’ll never need the money again, and you’re happy the person you’re gifting to can spend it as and when they wish, then it’s a simple as a bank transfer or cheque. But if you may need access or want to control how and when the money is spent then you may want to look at some specialist investments or using different types of trust arrangement.
Trust planning needs to be simpler
Les Cameron, tax expert at Prudential, says: The Red Book confirms that the government will issue a consultation on trusts with the intent on making the use of trusts simpler, fairer and more transparent.
Simplicity would be welcome as it can be a fiendishly difficult area and has been looked at before. It will be interesting to hear the Government’s thoughts. In the meantime, people considering trust planning may think about bringing their planning forward as these changes don’t tend to be retrospective.
Vince Smith-Hughes, retirement expert at Prudential: Measures to ban pension cold calling can’t be introduced soon enough. Our research indicates that nearly one in 10 over-55s fear they have been targeted by scammers since the launch of Pension Freedoms in 2015. Offers to unlock or transfer funds are tactics commonly used to defraud people of their retirement savings.
One in three over-55s say the risk of being defrauded of their savings is a major concern following Pension Freedoms. However, nearly half of those approached say they did not report their concerns because they did not know how to or were unaware of who they could report the scammers to.
Pension Freedoms, though enormously popular with consumers, have created a potentially lucrative opportunity for fraudsters and people need to be vigilant to safeguard their hard-earned retirement savings. Banning cold calling won’t stop scamming in itself, but it is a step in the right direction and the quicker the ban can be implemented the better.
UK digital services tax
Phil Organ, associate director at Leodis Wealth: The plan to introduce a UK digital services tax in April 2020 to target platform companies with global revenue of over £500m is ambitious and something I imagine very difficult to implement. It is however an acceptance that joint global agreement would be preferable. A target of raising £400 million looks pretty modest and suggests how difficult it will be.
Informed Choice, managing director and chartered financial planner Martin Bamford says: The adult Individual Savings Account (ISA) annual subscription limit for 2019/20 will remain unchanged at £20,000. For Junior ISAs, the annual subscription limit will rise in line with CPI inflation, to become £4,368 in April 2019. The government will be publishing a consultation on new draft regulations for maturing Child Trust Fund accounts. The annual subscription limit for Child Trust Funds will also increase to £4,368, rising in line with CPI inflation.
Hidden in the detail of Budget documents was confirmation that the Lifetime Allowance for pension savings will increase in April 2019 in line with the CPI measure of price inflation, to £1,055,000.
Despite much speculation ahead of the Budget, there were no changes to the Annual Allowance for pension savings or indeed to levels of tax relief available on pension contributions.
There was however renewed commitment to the pensions dashboard, including state pension data. The Chancellor has also renewed his commitment to enrolling self-employed in workplace pensions and introducing a cold calling ban in respect of pensions.
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