Expert advice essential after Budget tax shocks
Individuals and businesses will need the right advice to limit the tax increases they now face, following a radical summer Budget from George Osborne – writes DWIFA director Nick Beal.
The Chancellor plans to raise almost £50 billion in new taxes over the life of this Parliament, with higher earners and business owners set to shoulder much of the pain.
There will be a new cap on tax-free pension savings for top earners. Those whose annual income (including pension contributions) is over £150,000 will see their ability to put money into pensions and receive tax relief curtailed from next year. However, there is now a one-off window which will allow some top earners to invest up to £40,000 into their pensions between now and next April and still receive maximum tax relief.
Another key announcement was a change to the taxation of dividend income with effect from next April. New rates of dividend income tax will apply on share distributions from companies, meaning those taking more than £5000 per year in dividend income will pay extra tax. Business owners who have been used to drawing the majority of their income via dividends may have to rethink their remuneration strategy.
Those who run significant buy-to-let property portfolios are another target. Mortgage tax relief on letting loans will be restricted to the basic rate of income tax, reducing the amount that can be claimed from up to 45p in the pound to 20p in the pound.. The tax-relief cut will apply in stages over the next five years. Landlords will also face new limits on the amount they can claim for replacing furniture in their properties.
There are some tax cuts in the pipeline. The Chancellor has promised an extra inheritance tax exemption allowing more property wealth to be passed on tax free. This so-called ‘residence nil rate band’ will not start until April 2017 and will be worth initially £100,000, rising in stages to £175,000.
It applies only to bequests to direct descendants (children, grandchildren, or great-grandchildren), made either in the form of the main family home or proceeds from selling or downsizing the main home.
All the changes emphasise the need for regular reviews of your financial plans. The expert knowledge and in-depth experience of the team of advisers at David Williams IFA Chartered Financial Planners can help you chart a safe course through the Chancellor’s changes.