Steve Murray, from 1825, gives a rundown of the last ever Spring Budget.
Back in November, the Chancellor finished his first Autumn Statement by announcing that it would be his last. He began today’s Spring Budget by explaining that it was actually the second “last Spring Budget” – the first last one being held 24 years ago.
I’m mentioning this because it was probably the most dramatic aspect of the Chancellor’s speech. His other announcements were largely expected and confirmed that many of his previous announcements are going ahead as planned. I see this as a positive thing for people planning their finances as following pension freedoms and the changes to tax allowances and limits, we’ve seen over the past few years, it’s good to have some stability on which to base plans.
That being said, there were some announcements that are worth bringing to your attention, particularly if you are self-employed as there was the announcement of some (well-trailed) changes to your tax circumstances.
The Chancellor started by joking about his reputation as a ‘spreadsheet man’, focusing on the state of the UK economy and on the reports from the Office of Budget Responsibility (OBR), the Government’s independent and fiscal forecaster.
It was a positive start, with reports showing that the deficit is down by two thirds and that the UK’s economic growth in 2016 was second highest among developed countries. Reflecting the strength of the economy, the OBR has upgraded its growth forecast from 1.4% to 2% next year. They expect growth to then dip again for the next three years, before returning to 2% in 2021.
On the subject of growth, the Chancellor stated that “Economic growth is a means, and not an ends in itself”. This is a philosophy I can relate to, and is something I think it’s worth keeping in mind for financial planning. Our job is to make sure your money enables you to achieve what you want to in your life. It’s at that crossroads where your wealth meets the rest of your life that we can really make a difference.
The main announcement that could have an impact on your finances was made in relation to the tax-free dividend allowance.
April 2016 saw major reforms to dividend taxation including the introduction of a £5,000 annual dividend allowance. However, it looks as if this generous allowance will be short-lived, as the Chancellor announced today that the tax-free dividend allowance will be lowered from £5,000 to £2,000 in April 2018.
This is part of an effort to even out the tax treatment of employees and those who are self-employed or work through their own company. And the Treasury estimates that half of those who will be affected by the dividend cut are Director/Shareholders of private companies.
Other people who may be adversely affected are likely to have over £50,000 invested in shares, outside ISAs. If dividends from shares make up part of your financial plan, it’s worth talking to your financial planner to make sure you’re still set up as tax efficiently as possible given the new limits. Of course April 2018 is still over a year away, so there’s no need for immediate corrective action.
National Insurance and the self-employed
In a further attempt to ensure “fairer” tax treatment of the self-employed and company employees, the Chancellor announced changes to National Insurance contributions paid by self-employed workers.
The self-employed currently pay 9% in Class 4 National Insurance contributions, but this will increase to 10% in April 2018 and will go up again to 11% the following year.
This change is based on the Chancellor’s belief that the decision to work for yourself should not be based on the tax benefits of doing so. If you are self-employed it’s worth being aware of this change to your circumstances, and may be worth reviewing your tax and NI situation.
While there were no other noteworthy financial announcements during this Budget, the Chancellor did outline plans for several Government consultations in the coming year.
The most interesting is probably the one relating to the provision of long-term care. The Chancellor called out our ageing society, explaining that there are half a million more over-75s today then there were in 2010. Today he committed an extra £2bn to councils in England to spend on adult social care services over the next three years.
In addition to this, the Government will publish a Green Paper later this year aimed at addressing the long-term challenges of funding social care. Contrary to pre-Budget speculation, this will not include a resurrection of the so-called ‘death tax’. However we will be watching this closely to see if there will be any impact of financial planning strategies for later life.
In today’s Budget the Chancellor also confirmed that tax allowances will be changing as planned:
- The income tax personal allowance will rise as planned – increasing to £11,500 in April 2017 and £12,500 by 2020
- The higher-rate tax threshold will rise to £50,000 by 2020
- The annual Capital Gains Tax exemption will increase to £11,300
Overall, it was a very quiet Budget for savings and investments, however if you do have any questions about the Chancellor’s announcements or anything you’ve read in this blog, your Financial Planner will be happy to help.
The information in this blog or any response to comments should not be regarded as financial advice. Laws and tax rules may change in the future. The information here is based on our understanding in March 2017. Personal circumstances also have an impact on tax treatment.