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
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.
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