Financial Planning firm Bellpenny’s trio of Clare Eve CTA TEP, tax and trust specialist, Steven Grace ACII DipPFS, regional manager, Wales and South West, and Giuseppe Iannelli DipFA, regional manager, West and South London, tell FPT what they made of the announcements in a joint assessment.
Which part of the Budget do you think will come under closer scrutiny and grab the headlines in the next few days and why?
We believe the Lifetime ISA will continue to make headlines. This surprise announcement may pave the way for future pension reforms. The Lifetime ISA is nice idea and we look forward to seeing how this develops, as we do worry about younger people not having worthwhile pensions, and this is surely a decent helping hand.
What do you think the main highlights are of interest to financial planners and clients?
Capital gains tax will reduce by 8 percentage points, so from 18% to 10% for basic rate tax payers and from 28% to 20% for higher rate tax payers. Although this is welcome news for those with assets subject to capital gains tax, it is another blow for investors in residential properties who will continue to suffer tax at either 18% or 28%.
The increased ISA limit up to £20,000 from April 2017 is good news for all and will allow more funds to be moved from deposits or GIA’s into this much more tax-efficient wrapper; as most clients take advantage of this every year we can move up to £40k for a couple.
Those under 40 on 6 April 2017 will be able to invest a maximum of £4,000 each year up to the age of 50 and receive an additional bonus of 25% from the Government. The savings and bonus can only be accessed if the investor wishes to buy a first home or from age 60 to use the funds in retirement. It is possible to withdraw funds if required at any point, but the bonus element plus growth on the bonus will be withdrawn and a 5% charge will be applied.
Although there was much discussion concerning pensions prior to Budget day, at least the tax free lump sum seems safe for now. However with the introduction of the Lifetime ISA it will be interesting to see if this paves the way to reform the current pension regime into an ISA arrangement.
The personal allowance will increase to £11,500 and the higher rate threshold to £45,000 from April 2017.
Which announcements are you pleased/disappointed to hear and why?
The main highlight is the “no further changes to our pension system at this time” - a welcomed delay to an inevitable change. We think that in general planners and clients will be pleased that pensions were largely left alone.
The increase to the personal allowance always goes down well with those who are on the edge of paying 40%. In general, we are pleased that this was a budget to support smaller businesses, as this is undoubtedly good for business owners, employees and for the UK as a whole, with the added benefit now of a planned reduction in Capital Gains Tax, so helpful for when business owners come to sell-up or retire. Of course this is also good news for individual investors.
With increased choice in the marketplace for savers combined with new and complex taxation rules for dividends and capital gains, it makes it even more important to obtain financial advice.