Summer budget response
With the introduction of the ‘national living wage’ at the forefront of the budget announcements, for once pensions are unlikely to be hitting the main headlines.
By Taylor Patterson.However, it could be that radical pension reform is still on the agenda and not far away. The government have announced the publication of a consultation paper on the future of pension and contribution tax relief. Whilst it is clear that they want to retain the incentive to save for retirement, which tax relief provides, they are open to considering new structures. Specifically, they want to garner opinion on an Individual Savings Account (ISA) style model of limited tax relief up front, tax exempt within and tax exempt on the way out.
It has been announced that pension contribution tax relief, in its current format, will be restricted for higher earners (those with over £150,000 of gross annual income including pension contributions) from April 2016. It has been confirmed that for every £2 of adjusted income over £150,000, the annual allowance will fall by £1 down to a minimum of £10,000 for those earning over £210,000.Remaining on the pension theme, the Budget has further confirmed that the lifetime allowance will fall to £1 million in April 2016 and that transitional protection will be available for those seeking to protect the higher current allowance of £1.25m. We await further detail on the protection and will be in touch with relevant clients when we know more.
A number of estate planning strategies may also be affected by the announcement of a ‘family home allowance’ which will see the nil rate band of Inheritance Tax (IHT) on the estates of married couples or civil partners rise from the current £650,000 up to a potential £1,000,000. The increased allowance will be implemented gradually beginning in April 2017.The taxation of dividend reforms may also affect the remuneration strategies of those deriving income from shareholdings, which we will factor in to our future review discussions with clients.
In summary, we are largely positive that the changes announced will be positive for the economy as a whole, as the UK continues to find a path to economic stability. We recognise though, that different policies will affect people in different ways and all legislation changes will be reviewed with clients at an appropriate time.
