Here’s a run-down of the best of the rest.
REDUCTIONS TO CAPITAL GAINS TAX
In two weeks’ time, the tax charged on the profit you make when you sell an asset will be reduced considerably. Capital gains tax (CGT) will be cut from 18 per cent to 10 per cent for basic rate taxpayers, and from 28 per cent to 20 per cent for 40p and 45p rate taxpayers.
Because you have an £11,100 annual allowance, few Britons actually pay CGT, but the number who do has been growing fast. The Treasury now nets around 50 per cent more from CGT than from inheritance tax, and the changes are estimated to cost it £600m a year from 2017-18.
Private cars, small cash gifts and antiques under £6,000 are exempt, but the old rates (18 and 28 per cent) will continue to apply to gains on the sale of a residential property that is not your main home, so second home owners and buy to let landlords won’t benefit. Executives at private equity firms should note that profits or “carried interest” will also be taxed at the old rate.
The reductions will be a big boon for investors who hold significant investments outside their Isa or pension. And even then, you are able to earn £11,100 a year in capital gains before you are liable for taxation.
The new CGT rates have widened the gap with the income tax charged on dividends held by higher and top rate taxpayers (32.5 and 38.1 per cent respectively after a new £5,000 tax-free dividend allowance). Some think that this may skew investment towards growth stocks. “We could now see many people reconsider the investments they are holding, with many being lured toward growth stocks, which pay little income, but could grow in value,” says Rachael Griffin, financial planning expert at Old Mutual Wealth.
CUT TO “SALARY SACRIFICE”
Osborne also announced that the government is looking at ways to cut “salary sacrifice” schemes, where employee requests that their bonus or salary is cut, to avoid income tax, and is paid instead as a benefit. Indeed, HMRC has reported a 30 per cent increase in these schemes since 2010.“The employee gets the top rate of tax relief immediately plus a saving in national insurance contribution (NIC) of 1 per cent,” says Mark Soper, co-founder of RetireEasy.co.uk. “However, the real benefit is the saving in employers NIC of 13.8 per cent.”
The government will now look again at the range of benefits which attract these income tax and NIC advantages, which include payments for childcare.
For many people, retirement planning is complicated by having a large number of private pensions. It’s a growing problem. Research by LV shows that people today expect to take nine jobs over the course of their careers, and only 30 per cent of people who have amassed multiple pension pots at different workplaces have chosen to consolidate their savings in one place.
Now, the chancellor has set a deadline for the implementation of a “pensions dashboard”, to allow individuals to keep track of their disparate pension pots through a single digital portal.
It sounds like a good idea, but details about who would implement it are thin on the ground. In its Budget statement, the Treasury said that “the government will ensure the industry designs, funds and launches a pensions dashboard by 2019.” But as Tom McPhail, head of retirement policy at Hargreaves Lansdown points out, such a scheme would face a large number of obstacles.
Not only would pensions providers need to be absolutely certain their customers’ data was safe on the external portal, but they would also see no commercial benefits for their toil. “Policy makers would much rather the industry just got on with it,” says McPhail. “The industry would much rather the policymakers just forced their hand, because then at least everyone would have to do it. For now, we have an impasse.”
IMPROVEMENTS TO FINANCIAL ADVICE
One year after pensions freedoms were introduced, and baby boomers are as daunted as ever by the range of options available to them once they reach 55. Research by The People’s Pension and State Street Global Advisors, which looked into attitudes towards the new freedoms, found that people are fearful of making the wrong choice, and describe pensions as “a minefield”, “bewildering”, and “impossible to understand”.
A new Pensions Advice Allowance is now being consulted on, which, if implemented, would allow under-55s to withdraw up to £500 tax-free from defined contribution pension savings and put the money towards proper financial advice.
The government will also consult on introducing a single, clear definition of financial advice, to remove regulatory uncertainty. This came two days after a report by the Financial Advice Market Review said that such a step would “ensure that consumers can access financial advice at a key milestone in their lives and feel confident in making financial decisions as they approach retirement.”