It is not often that we have a July Budget, but the one delivered by the Chancellor last week provided an interesting mix of both good and bad news.
There has been much written about itover the last few days and I want toconcentrate on the personal financial planning parts.
On a positive note, the Chancellor has introduced a £5,000 annual tax-free allowance for dividends. This should cover the dividend income of most private investors.
Unfortunately, any dividend income over this amount will now be taxed by an extra 7.5 per cent which will hit small business owners who pay themselves in dividends.
Another welcome change was the introduction of an extra inheritance tax allowance, to be used against the main family home when leaving it to direct descendants. George Osbourne has said that this will sit
on top of the existing allowance. It isn’t clear yet exactly how this will work and as always, the devil is in the detail.
Certainly the headlines declaring a £1 million inheritance tax allowance for couples are at best misleading, especially given the average house price in Northern Ireland.
The pension changes continued for yet another Budget with the introduction of a second pension input period for this tax year. This will provide some interesting planning opportunities for those wanting to maximise their retirement pot. Higher earners may be rushing to put money into their pension by 6th April, which is when the annual allowance will be restricted for those earning over £150,000.
Care will need to be taken when the lifetime allowance drops to £1m. Many commentators think, however, that the lifetime allowance may be scrapped in the future, especially if the announced pension review changes the tax treatment of pensions to be more like ISAs.
From April 2017, the income tax personal allowance will rise to £11,200 catching up with the personal allowance for those over 75. This will make pension provision even more attractive for those over 55 who are set to only have the state pension when they retire.
One negative point was the removal of mortgage interest as a business expense for higher-rate tax purposes. This will certainly make buy-to-lets less attractive for higher-rate taxpayers who have part-funded their properties with mortgages.
David Hill is a Chartered Financial Planner and Independent Investment Adviser at Hills Financial Planning, 15 Agnew Street, Larne. He can be contacted on 028 28276814, email firstname.lastname@example.org or see www.hillsfinancialplanning.co.uk