Reduction to the Dividend Allowance
The £5,000 annual dividend allowance introduced last year will be reduced to £2,000 from April 2018, which will hit small business owners who take their profits as dividends, making employer pension contributions more attractive.
Stronger measures against tax avoidance schemes
Financial penalties will be imposed against the enablers of schemes that do not pass the GAAR test (General Anti-Abuse Rule). Tried and trusted methods such as packaged IHT solutions (using Loan Trusts and Discounted Gift Trusts) will not be affected.
Some of the changes were already known about:
The ISA rate will rise from its current £15,240 pa to £20,000
The MPAA (Money Purchase Annual Allowance), for those who are still contributing to pension schemes but have accessed their Direct Contribution pension under the new pensions flexibility, will see this cut from £10,000 to £4,000 from April 2017. Accessing the tax free cash only, or those already in capped drawdown arrangements, will not trigger the MPAA.
The rate of Corporation tax will fall from April 1st, from 20% to 19%, with a further cut to 17% in April 2020. This would suggest that it may be useful for small business owners to structure pension funding ahead of the cuts to reduce the amount of tax paid at the higher rate.
But the big story was, of course, the government climbdown over the proposed higher rate of Class 4 NIC contributions, which was to go up from 9% to 10% from April 2018, increasing to 11% in April 2019. This was deemed to have broken a manifesto commitment not to increase NIC during the life of the parliament, and the Chancellor eventually bowed to pressure to reverse his decision.
For any questions, please email Steve Wheatcroft.
Dafferns Financial Services Limited is an appointed representative of Greyfriars Asset Management LLP which is authorised and regulated by the Financial Conduct Authority.