March 2017 Budget

    March 2017 Budget

    Below is a summary of the main points announced by the Chancellor of the Exchequer in the March 2017 Budget.

    Please note that every care has been taken in preparing this summary but no responsibility can be accepted for loss occasioned to any person acting or refraining from acting as a result of the material herein.

    Tax Rates

    Income Tax

    The following income tax rates will apply for the 2017/18 years:

    • The basic personal tax-free allowance is £11,500 but this will be restricted for income in excess of £100,000.
    • The first £33,500 of taxable income is to be taxed at 20% – or 7.5% for dividends after the first £5,000.
    • The next £116,500 is taxable at 40% – or 32.5% for dividends.
    • The balance over £150,000 is taxable at 45% (or 38.1% for dividends).

    From April 2017, there will be no need to pay tax on up to £1,000 of income from occasional jobs and the first £1,000 of property income. Where tax allowances cover income fully, there will be no need to declare the income.

    People with income exceeding £1,000 can choose to either deduct the allowance or actual expenses to calculate the taxable amount.

    Dividends

    The 0% dividend allowance will be reduced from £5,000 to £2,000 from April 2018.

    Trusts

    The tax rate applicable to trusts income (excluding dividends) is 45%.

    National Minimum Wage

    From April 2017, the national living wage will increase for workers aged 25 and older to £7.50 per hour. The minimum wage will continue to apply to workers aged 24 and under.

    Transferable Tax Allowances For Married Couples

    A spouse or civil partner who is not liable to income tax above the basic rate can transfer up to £1,150 of their personal allowance to their spouse/civil partner provided the recipient of the transfer is not liable to higher rate tax. This is applicable for the 2017/18 tax year.

    Individual Savings Accounts (ISAs)

    The ISA subscription limit will be increased to £20,000 from April 2017.

    Lifetime Isa

    A new Lifetime ISA will also be introduced from April 2017 which will be available to those aged between 18 and 40. It will allow them to save up to £4,000 per year for their first home or for retirement.

    National Insurance

    2017/18

    Class 1 NIC – Employee & Employer rates & thresholds are per week unless stated:

    Lower Earnings Limit – £113.00

    • Upper Earnings Limit (UEL) for employees’ primary Class 1 NICs – £866.00
    • Primary Threshold – £157.00
    • Secondary Threshold – £157.00
    • Upper Secondary Threshold for U21’s – £866.00

    Employee’s (primary) Class 1 contribution rates

    • Weekly earnings above £157.01 to £866.00 – 12%
    • Weekly earnings above £866.00 – 2%

    Employer’s (secondary) Class 1 contribution rates

    • Weekly earnings above £157.00 – 13.8%

    Class 2 NIC

    • Self-employed NIC per week – £2.85
    • Small profits threshold – £6,025

    Class 2 NIC will be abolished from April 2018 and, at the same time, the main rate of Class 4 NIC will increase by 1% to 10%.  A further increase to 11% will follow from April 2019 in order to align more closely with the rates paid by employees.

    Class 4 NIC

    • Annual profits below lower profits limit of £8,164 – Nil
    • Annual profits above £8,164 but below £45,000 – 9%
    • Annual profits above upper profits limit of £45,000 – 2%

    Employment Allowance

    The Employment Allowance will remain at £3,000 in 2017/18.

    Capital Gains Tax (CGT)

    The annual exemption for 2017/18 will increase to £11,300.

    The rates of Capital Gains Tax will remain at 10% for gains that fall within the basic rate band and 20% for gains that fall within the higher rate band.

    The rates of Capital Gains Tax for chargeable gains on the disposal of residential property (that does not qualify for private residence relief) and carried interest will remain at 18% for gains that fall within the basic rate band and 28% for gains that fall within the higher rate band.

    Inheritance Tax

    The nil rate band will remain at £325,000 for 2017/18.

    However, from 6 April 2017, you can also benefit from an additional nil rate band if you leave your main home to your children or grandchildren.

    For 2017/18 this additional band will be £100,000 and will rise by £25,000 per year over the next three tax years.

    The tax payable on the excess of the chargeable estate over the above threshold remains at the rate of 40%. A reduced rate of inheritance tax of 36% is available where 10% or more of the net value of the estate is left to a qualifying charity.

    Corporation Tax

    The Chancellor confirmed that corporation tax rates for UK companies will fall from the current 20% to 19% from 1 April 2017. The rate of corporation tax will be reduced further to 17% by 2020.

    Reducing Your Inheritance Tax Bill

    Inheritance Tax

    Here are some methods you can put to use to reduce or mitigate a potential Inheritance Tax (IHT) liability.

    Make Use Of Nil-Rate Bands

    Married couples and registered civil partners who are UK-domiciled can transfer assets to each other during their lifetime, or when they die, without having to pay inheritance tax by making using of the spouse / civil partner exemption.

    The way this works is that a survivor of a marriage / civil partnership can claim their partner’s nil rate band, in addition to their own entitlement.  As the current nil-rate band is £325,000, the effective allowance can be as much as £650,000 – assuming that none of it was used on first death.

    New Nil-Rate Residence Band

    You can use the nil-rate residence band to pass on your main residence to direct descendants such as children or grandchildren – and this also includes step-children, adopted children and foster children.

    By using it in this way, you can increase your nil rate exemption by £325,000 per person.

    Introduction of Nil-Rate Residence Band

    The new band will be introduced in phases starting in April 2017, as follows:

    April 2017: £100,000

    April 2018: £125,000

    April 2019: £150,000

    April 2020: £175,000

    If you do not use the allowance, it can be transferred to a spouse or civil partner on death.  This means that a couple could have a combined nil rate band of £lm from 2020. However, if the net value of the deceased’s estate (after deducting any liabilities but before reliefs and exemptions) is above £2m, the additional main residence nil-rate band will be tapered away by £1 for every £2 that the net value exceeds this amount.

    Life Assurance

    You can use a whole-of-life assurance policy to pay the tax bill that your beneficiaries would receive as a consequence of inheriting your wealth.  The policy would pay out on your death and it should be set up in trust to avoid the proceeds falling into the estate.

    Because the cost of life assurance is likely to be expensive, especially for older people, you should ensure that the expense can be justified and the potential outlay in premiums is likely to be less than the potential IHT bill they are designed to cover.

    Make Use Of Potentially Exempt Transfers

    You are entitled to gift most of your assets, including cash and shares to beneficiaries.

    However, the gift has to be outright which means you can no longer benefit from it and so this will excludes giving away your family home if you intend to continue living there – unless you start to pay a market rent.

    Gift Allowances

    You can gift up to £3,000 a year in order to reduce the size of your estate for inheritance tax purposes.  If you did not use the £3,000 Gift Allowance in the last tax year, your current gift allowance can increase to £6,000.

    You can also gift £250 to any number of people every year but it is not possible to combine this with the annual £3,000 exemption.

    If you are a parent, you can gift £5,000 to your children in respect of a wedding or civil partnership.  Grandparents can gift £2,500 and anyone else can gift £1,000.

    Gifts to registered charities and political parties are also exempt from inheritance tax.

    You can also reduce your potential IHT rate to 36 per cent rather than 40 per cent if you leave 10 per cent of your net estate (after the nil rate band has been taken into account) to a qualifying charity.

    Rules Around Gift Allowances

    If you intend to make gifts on a regular basis out of your income, then they can be ignored for inheritance tax purposes if they do not affect your standard of living. This can make a significant difference to wealthier individuals who might have a potential tax liability.

    Pensions

    Pension funds can play an important role in inheritance tax planning because your pension assets sit outside of your estate for inheritance tax purposes which means your pension can be passed through the generations tax-free.

    If you die before the age of 75, all payments from a pension on death are tax-free whether the benefits have been taken or not.

    Make Use Of Trusts

    There are a number of different trust arrangements that can be used to reduce the potential inheritance tax bill on your beneficiaries. However, using trusts in this area of financial planning can be complex and you should make sure that you consult with a professional on the matter.

    Business Property Relief Schemes

    Investing in assets that qualify for business property relief can reduce the size of a taxable estate. Qualifying assets must have been held for at least two years at the date of death.

    Examples of these relief schemes are enterprise investment schemes or shares listed on the Alternative Investment Market.  These kind of schemes are often high-risk.

    Tax Planning

    Tax Planning

    The first quarter of the year is a time when advisors should be getting together with clients to discuss their tax planning issues.  It’s inevitable that the run-up to April is always the busiest time of year for advisers and so they should be making contact in order to plan meetings with their clients.  The earlier, the better.

    Prioritise Tax Planning

    There are numerous issues that need to be discussed and any initial tax planning should consider your basic allowances.  This should take priority over other issues because your adviser needs to make sure you have taken full advantage of your tax allowances – Capital Gains, ISAs, etc

    Capital Gains Allowance

    You are entitled to an annual tax-free capital gains allowance of £11,100 in 2016-17.  For gains that are in excess of the allowance, your tax rate depends on the level of your income and so your adviser should be familiar with the bandings.

    ISA Allowance

    Part of the tax planning process is to ensure you have taken advantage of your annual ISA allowance.  This year, the allowance is £15,240.  This time of year is traditionally a busy time for people to invest money into their ISAs and so you should be consulting with your adviser to determine the most suitable type of ISA.  The sort of issues you should be considering are: stocks & shares or cash; short-term or long-term objectives; how risky are you prepared to be, etc

    Lifetime ISA

    This year, there is an added issue when considering your ISA investment: the launch of the new Lifetime ISA which occurs at the beginning of the new tax year.

    The purpose of the Lifetime ISA is to allow people to save for a property deposit which attracts tax relief, as well as save for a pension.

    Pension Planning

    This time of year is also important for pension planning because your adviser should be thinking about your annual allowance – which is currently £40,000.  Your adviser should be making sure you  have used all your annual allowance, if you are able to afford it.  And they should also be making sure you have not exceeded your annual allowance too.

    Pension Carry Forward

    Where there are issues with under-payment or over-payment of your annual allowance, your adviser should be discussing carrying forward any of you unused allowance from previous years.

    Tapered Allowance

    With effect from April, the government is introducing a tapered allowance which affects people with salaries over £110,000.  Their pension annual allowance will fall from £40,000 to £10,000 according to their level of income – but the definition of income is complex and so your adviser should make sure they’re familiar with the new rules.

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