Media Centre

24th March 2017
Spring Budget 2017

Spring Budget

The Chancellor has delivered his first and last Spring Budget. From now on, Budgets will be delivered in the autumn, with the first one taking place in autumn 2017 with a toned down statement on the economy delivered each March.

We have prepared a summary of some key points from the budget and how they may affect you.

Reduced Money Purchase Annual Allowance (MPAA)

The MPAA is to be cut from £10,000 to £4,000 from April 2017. This only affects those who have accessed their pensions under the new pension flexibilities and wish to continue paying into their pension. Those only accessing their tax-free cash, or who were already in capped drawdown and haven’t exceeded the cap, will keep the full £40,000 annual allowance.

Higher earners Tapered Annual Allowance

The Tapered Annual Allowance remains in force and will continue to reduce the standard annual allowance by £1 for every £2 of adjusted income over £150,000 down to a minimum of £10,000 and subject to maximum reduction of £30,000.

Reduction to the dividend allowance

The annual dividend allowance introduced last year will remain at £5,000 for the 2017/18 tax year, but will then drop to £2,000 from April 2018. In particular, this will hit small and medium sized business owners who take their profits as a dividend and those with investment portfolios.

The consequence of the reduction in the dividend allowance would be that a basic rate taxpayer will increase his tax bill by £225, a higher rate taxpayer by £975 and an additional rate taxpayer by £1,143. Therefore, it is crucial to constantly utilise your annual ISA allowance.

Employer pension contributions will become an even more attractive way of extracting profits from a business. And, if the director is over 55, they can now have full unrestricted access to their pension savings.

Class 4 NICs for the self-employed are scrapped

The Chancellor, Philip Hammond, has dropped plans to increase Class 4 National Insurance Contributions (NICs) paid by the self-employed.

He had announced an increase from 9% to 10% in 2018, and then up a further percentage point to 11% in 2019.

After the Spring Budget was announced, the Chancellor was accused of breaking the Conservative party’s 2015 manifesto pledge to not raise income tax or national insurance. Even though the manifesto pledge only related to class 1 national insurance, the Chancellor has said that he wanted to make sure the government stuck to the ‘spirit’ of its manifesto pledge.

2017/18 tax rates and bands confirmed

The personal allowance for 2017/18 is confirmed as £11,500 and the higher rate threshold will rise to £45,000. Increases are planned to £12,500 and £50,000 respectively by 2020.

Capital Gains Tax

The individual capital gains tax allowance will increase to £11,300 from 2017/18.

ISA allowance increase

The amount savers can add tax-free into an ISA account will increase from £15,240 to £20,000 from 6 April 2017. That will provide an additional tax-free investment of £4,760.

Junior ISA allowance will increase in line with the Consumer Price Index (CPI) from £4,080 to £4,128.

Lifetime ISA (LISA) introduction

Providing you meet certain criteria, the LISA has been designed for two purposes; to help first-time buyers get a foothold on the property ladder, and secondly for retirement, by providing penalty free access to your savings after the age of 60. Up to £4,000 per annum can be paid into the LISA and this will receive a 25% government bonus. 

Residence Nil Rate Band (RNRB)

From April, you may be entitled to an extra £100,000 Inheritance Tax nil rate band where the family home or the value passes to direct descendants on death. Please note that this is a complicated area and professional advice should be sought. Our financial planners can assist you should you need further information.