Budget 2018 – what it means for clients

Budget 2018 – what it means for clients

With no significant tax or pension changes in the Budget, we can plan for the tax year ahead with confidence. The key planning points for us as Financial Advisers from the Budget, and from measures already announced, are:

Income tax

  • The personal allowance and higher rate threshold will increase earlier than expected to £12,500 and £50,000 respectively from April 2019. The income tax rates and bands for Scottish taxpayers will be announced in Scottish Budget on 12 December.
  • There are no other changes to income tax bands or allowances.

Pensions

  • The pension lifetime allowance (LTA) will rise to £1,055,000 from April 2019.
  • Reassuringly, there are no changes to pension annual allowances (AA). The standard AA remains at £40,000, the money purchase AA stays at £4,000 (with no carry forward) and there are no changes to the high income AA taper rules.

Capital gains tax

  • The capital gains tax allowance will increase by £300 to £12,000 from April 2019.

Inheritance tax

  • As expected, the IHT nil rate band will remain frozen at £325,000 until April 2021.
  • The residence nil rate band will increase from £125,000 to £150,000 from April 2019, allowing some couples to leave up to £950,000 to future generations free of IHT.

Trust taxation

  • There will be a consultation to consider the simplification and fairness of trust taxation.
  • The existing IHT regime for trusts is notoriously complex and any attempt to simplify it is extremely welcome. Removing the complexity of trust tax charges would allow us to concentrate on the benefits a trust can offer clients to control their affairs, without them being fearful of charges they don’t fully understand.

ISAs

  • Annual ISA limits stay at £20,000 per person, with no reduction in the range of ISA options available to meet different needs.

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The New State Pension

The New State Pension

The new state pension was introduced on 6th April 2016.  This affects everyone who has yet to reach state pension age.

The old system was too complicated to work out how much you would receive in old age, making it difficult to plan for retirement.  The new State Pension was introduced to simplify the situation.

The full State Pension is based on your National Insurance (NI) contributions only.  You will need 35 years contributions to get the get the full amount which is currently £164.35 per week.

Working out how much you’ll receive is very straightforward if you’re just starting work and haven’t built up any State Pension.

For example, 25 years of NI contributions means a state pension of 25/35ths of the full amount.  However, if you have less than 10 years, you won’t normally qualify for any State Pension.  It’s a good idea to get a forecast to see what you’ve built up so far so you know here you stand. This is available from the government website by clicking here.

The new State Pension increases each year by whichever is the highest:

  • earnings – the average percentage growth in wages

  • prices – the percentage growth in prices in the UK as measured by the Consumer Prices Index

  • 2.5%

You can still get a State Pension if you have other income like a personal pension or a pension from work.

There is no perfect solution to your retirement planning, however, one thing is for certain; for most people this will only provide for a basic lifestyle.

In order to enjoy retirement and not have to work for the rest of your life you will need to make extra provisions.

At TKV we offer a complimentary pension review of your retirement plans, contact us to arrange a meeting.

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