View more on these topics

Tony Wickenden: Tax planning under the Tories

Tony-Wickenden-MM-Peach-700x450.jpg

Now the Conservatives have claimed victory, what can we expect with regards to pensions, tax and financial planning?

Although we are only just into the first full tax year living with the radical changes to the rules on pension drawdown and death benefits we can expect more change, with a special focus on trying to manage (read: reduce) the £20bn-plus net tax cost of pensions.

Stage one, the reduction of the lifetime allowance, was announced in the Budget but did not make the pre-election Finance Act.

The lifetime allowance is set to fall to £1m from 2016/17, with another raft of transitional protections introduced. There is scope now for some people near or over that limit to top up ahead of this change and then claim the latest protection for their fund. This change, it is thought, is likely to be incorporated in a second Finance Bill this year.

Meanwhile, in their manifesto, the Conservatives said they would reduce the annual allowance for pension contributions for those with incomes of over £150,000 by £1 for each £2 of excess income, down to a minimum allowance of £10,000 at incomes of £210,000 and above. On the basis of earlier changes to the annual allowance, contributions made before any government announcement will not be affected, so high earners may want to consider further contributions as soon as possible. Other ideas, such as flat-rate relief, merging the pension and Isa, and reducing or removing tax-free cash together with limitation or removal of the national insurance exemption on pension contributions have all been mentioned by various think-tanks. Further developments certainly cannot be ruled out.

When it comes to working out what other tax and financial planning changes we can expect to see we need to consider announcements made in the Budget but not yet legislated for as well as plans set out in the manifesto.

So what did not make the cut from the Budget in the pre-election Finance Bill?

The personal savings allowance

From 2016/17 this measure would give basic rate taxpayers an allowance of £1,000 for savings income (basically interest but also offshore investment bond gains). Higher rate taxpayers would receive an allowance of £500 – worth the same £200 saving in tax – but additional rate taxpayers get nothing. The main planning point is to consider, when making deposits (or realising offshore investment bond gains), when the income/gains will arise.

Pension annuity sales

This controversial idea is currently out for consultation but with the Conservatives back in power it should now become a reality from 2016/17.

Let’s also take a look at the commitments made in the Conservative manifesto. Alongside the plans for pensions described above it proposed many measures directly or indirectly affecting financial planning, including:

Income tax

By 2020/21, the personal allowance would rise to £12,500 (cf £10,600) and the higher rate threshold would rise to £50,000 (cf £42,385). In practice, the Finance Act 2015 has legislated for personal allowance increases for 2016/17 (£10,800) and 2017/18 (£11,000). Osborne promised higher rate taxpayers would benefit fully from the increase, taking the higher rate threshold up to £42,700 in 2016/17 and £43,300 in 2017/18. Of course, the Chancellor could change this but the implications are that income tax reductions will be modest until 2018/19.

Main residence inheritance tax allowance

The annual allowance cut was designed to finance a main residence IHT exemption of £175,000, transferable between spouses and civil partners and phased out at the rate of £1 for each £2 of estate value over £2m. The effect for a couple is to give a total IHT exemption of up to £1m (2 x [£325,000 nil rate band + £175,000 main residence exemption]), assuming they own a home worth at least £350,000. It is unclear how this would operate if the home had to be sold because of a need for long-term care.

Non-domiciliaries

The Conservatives said they would further increase the tax on non-domiciled individuals (increases came into effect this year) but gave no numbers.

Anti-evasion and anti-avoidance

Like the other main parties, the Conservatives pledged to raise a considerable sum (£5bn a year by 2017/18) from anti-evasion and anti-avoidance measures. Also in line with the other parties, however, they gave very little indication how this would be achieved.

 Annual investment allowance

This is currently due to fall from £500,000 to £25,000 from 1 January 2016. The Conservatives promise to set a “new, significantly higher, permanent level for the annual investment allowance” but, following the line Osborne adopted in the Budget, do not say what this would be.

So are we in for an extended period of pensions, tax and financial planning calm? It seems not. And let’s not forget our new pensions minister, who is bound to want to impose some of her own ideas on the wonderful world of pensions and retirement planning. There is also the recently announced second Budget on 8 July to look forward to…

Tony Wickenden is joint managing director at Technical Connection

Recommended

Is school out for trainee advisers?

The planned closure of Sesame Bankhall’s Financial Adviser School has been seen as a great loss to the industry but sadly inevitable given the extent of the firm’s restructuring. Winding down its network of investment advisers has meant the school will not be taking on any new recruits, as finding them potential jobs with wealth […]

13

War of words: Struggle over pension risk warnings as regulators clash

Two months into the rollout of pension freedoms and providers are still struggling to get to grips with the FCA’s “second line of defence” rules, Money Marketing can reveal. At the same time, The Pensions Regulator insists it is right to tell trustees to give “generic” warnings to consumers, rather than the tailored warnings expected […]

Dean Julie Cazenove

Sanditon launches UK fund for Julie Dean

Sanditon Asset Management has announced details of the TM Sanditon UK Fund which it is set to launch on 22nd June. The fund, managed by investment manager Julie Dean, will invest in 35 to 65 listed equity securities issued by UK companies. It will sit in the IMA UK All Companies sector. It seeks to achieve returns 2 per […]

Business-Handshake-Finance-Deal-700.jpg

Thomas Miller recruits Towry director

Thomas Miller Investment has appointed Matt Swatton to head up the newly opened Birmingham branch as the company seeks expansion in the UK. Swatton joins the company from personal financial advice and investment management firm Towry, where he was a director of wealth management and financial planning. Thomas Miller Investment managing director Matt Phillips says: “I am really pleased that […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment