So as we take a look back on the Autumn Statement, nearly a week has gone by since the chancellor stood up in the House of Commons and read out his legislative changes. I hope many of you have had a chance to read our initial summary of the budget, but if not you can click here. Following this summary we thought it might be a good idea to focus on a few areas that affect the world of Financial planning.
Surprisingly pensions remained relatively unscathed on this occasion; many of us were probably expecting far wider changes.
The announcement to reduce the Annual Money Purchase Annual Allowance (MPAA) from £10,000 to £4,000 for defined contribution (DC) schemes is unlikely to have a major impact to those planning their retirement journey. For basic rate tax payers it means a loss of tax relief of £1,200 per year and for additional rate tax payers a loss of £2,700 per annum.
The annual allowance is a limit to the total amount of contributions that can be paid to defined contribution pension schemes and the total amount of benefits that you can build up in defined benefit pension schemes each year, for tax relief purposes. Remember that the MPAA only applies to individuals who have drawn down income (income is the taxable portion of your pension and can be paid as a lump sum or regular payments) in excess of their tax free lump sum of 25%.
Please don’t forget to inform your employer if you have drawn income from any of your DC pension schemes as membership of a workplace pension could mean that you exceed the MPAA without realising it and there are tax consequences if this happens.
Pensions remain one of the most tax efficient planning opportunities available and we continue to encourage all our clients to invest as much as they can within the appropriate limits.
The ability to sacrifice some of your salary in exchange for a pension contribution has remained and plays an important part of encouraging us all to save for our retirement. There are a number of advantages to using salary sacrifice and for most of us it makes good financial planning sense to do so.
The Autumn Statement confirmed that the ISA allowance will increase from £15,240 to £20,000 per person from the 6th April 2017.
After pensions, ISAs are the next most tax efficient way of saving. We continue to encourage all our clients to use their ISA allowances in full as unused allowances are not carried forward, so be prepared to lose them if you don’t use them.
ISAs can be used for short, medium and long term objectives, so in that regard are great products to hold.
An increase in the tax free personal allowance to £11,500 from the 6th April 2017 was confirmed, again this is an allowance that if you don’t use, you will lose.
We encourage our clients to consider how assets are held so that between spouses you get the most use from the personal allowances; you may even want to consider transferring part of your personal allowance to your spouse where possible.
Please do get in touch if you have any questions or need help with any aspect of your financial planning.