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Happy end of tax year – all you need to know about 2017/18

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As the start of a new tax year approaches, here are some of the major changes to tax, pensions and savings policy advisers need to be aware of, and the potential impact on clients.

Buy-to-let tax relief

First announced in July 2015, the Government is cutting mortgage interest tax relief for landlords to 20 per cent between now and 2020. This does not apply to limited companies, which has led to surge in the number of landlords buying houses through special purpose vehicles

Lifetime Isa

The Lifetime Isa will allow UK residents aged between 18 and 40 to pay in up to £4,000 each tax year, with contributions qualifying for a 25 per cent Government bonus.

Savers are eligible to to buy a first home worth up to £450,000, or it can be accessed from age 60 or in the event of terminal illness. Other withdrawals incur a 25 per cent exit charge, including on growth, except in the first year of the product, 2017/18.

The Government looks to be facing an uphill struggle in getting the Lifetime Isa off the ground. Some advisers have questioned the purpose of the product, while Money Marketing reported last month how the Treasury is said to be ringing providers on a weekly basis to check if they will be offering it.

A recent YouGov survey conducted with Zurich showed that two-thirds of UK adults aged between 18 and 40 have never heard of the Lifetime Isa.

Money purchase annual allowance

In the Budget last month, the Government said it would press ahead with a planned reduction in the money purchase annual allowance from £10,000 to £4,000. The move will apply from tomorrow retrospectively, and affect all individuals who have accessed their pension flexibly, regardless of when they accessed it. The pensions industry has widely opposed the cut, which it argues goes against the principle of pension freedoms.

New tax thresholds

Isas become more generous, with the limit on Isa contributions going from £15,240 to £20,000. At the same time, the personal allowance will rise from £11,000 to £11,500, while the threshold for higher-rate taxpayers will go from £43,000 to £45,000. In Scotland, the threshold for earned income will be frozen at £43,000.

Salary sacrifice

In the words of Helm Godfrey chairman Danby Bloch, the new salary sacrifice rules will “more or less annihilate flexible remuneration, cost employees a great deal of tax and their employees a hefty increase in National Insurance contributions”.

Benefits in kind provided under “optional remuneration arrangements” would be subject to income tax and Class 1A NICs. Pension saving and related pension advice are exempt. For the full analysis of what the salary sacrifice rules mean for advisers, click here

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Chris Williams 5th April 2017 at 4:31 pm

    Over 55 so I can’t have the Lifetime ISA, MPAA reduced to £4000 so I’m turning down employer pension contributions, salary sacrifice rules meaning I’ll pay more national insurance, and I’m not a higher rate taxpayer so not affected by the higher threshold. It seems like I’m part of a large segment of the population this government are trying to maker enemies of before the next election.

  2. @ Chris Williams

    “……this government are trying to maker enemies ….” Oh they have already done that alright. Taxed every whichway. Now not only IHT but iniquitous Probate Tax as well. Tax on diesels, NI increases for the self employed WILL happen. Inflation up (now over 3% and rising). Goodness knows what outcome from Brexit. All that you have mentioned. All in all not a lot to be cheerful about. But Happy New (tax) Year to one and all. Tax freedom day looks like getting close to Christmas Eve.

  3. The B2L tax relief changes shouldn’t be underestimated as the real devil is in the detail of the calculation!! This won’t just restrict tax relief on finance costs to the basic rate of tax, but it will also significantly increase ‘property profits’ aka taxable income. This will potentially push more people into higher rate tax and over the threshold where Child Benefit is lost – so a double whammy!!

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