No Finance Bill would be complete without the Government dicking around with pension tax relief. But this one is a real doozy.
Having announced the pension freedoms with a flourish in the 2014 Budget, officials realised they had a problem. What if people over 55 divert salary into their pension and then withdraw it, getting double bubble tax relief on their 25% tax-free cash?
The result was the Money Purchase Annual Allowance (MPAA), one of many fiddly allowances that make up the Rubix Cube that is the UK’s existing pension tax relief system.
The MPAA was first set at £10,000 for the 2015/16 tax year, and loads of over 55s duly accessed their pension flexibly thinking they would still be able to pay in that amount. No dice, unfortunately, as the Government has decided it should actually be reduced even further to just £4,000 for everyone.
Zero Opinion: A bit out of order, particularly as the Government has produced no evidence to support the change and is applying it from April 2017 despite the rules only just being laid before Parliament. But investors still have a £20,000 annual ISA allowance they can use (as well as other incentivised savings vehicles like VCTs and EISs), so hardly the end of the world.
Big(ish) change 2: Dividend allowance slashed
Urgh, another cut. This time the Government has decided the dividend allowance introduced in 2015 is too generous and so will hack it back from £5,000 to £2,000 for the 2018/19 tax year.
The tax rates on anything above the allowance are, well, a bit shit. If you’re a basic-rate taxpayer it’s not too bad (7.5%), but for higher-rate taxpayers it jumps to a hideous 32.5% while additional-rate taxpayers will have to pay 38.1%.
Zero opinion: Another mild kick in the nether regions for investors and business owners. Clearly any dividend paying investments that aren’t held in tax wrappers like ISAs or SIPPs need to be reviewed, while company owners who pay themselves a dividend rather than a wage might want to think about rejigging their remuneration strategy sooner rather than later.