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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ISA vs Pension

ISA vs Pension – which is best?

ISAs (Individual Savings Accounts) are a popular way to save.  They are after all tax efficient and opportunities to be able to access your savings is appealing.  Whilst the additional tax-relief available with pensions has longer term benefits, this money can only be accessed once you reach age 55.

ISAs and pensions are two separate products but they can also be used alongside each other.  For example, you receive tax relief on contributions into your pension, not with an ISA and you cannot take benefits from your pension until aged 55, whereas ISA you can access any time.

Whether you are already paying into an ISA and/or a pension, it may be worth finding out about your options and seeing whether they can be more aligned. To help maximise your retirement savings.

Did you know the ISA allowance is now £20,000 per annum?  Add that to the annual allowance for pension contributions of up to £40,000.  That’s a combined allowance of £60,000 that can be used to reduce your tax burden and to build up a worthwhile retirement fund.

Although, you may think retirement is a long way off for it’s important that you make the most of your opportunities now and build up sufficient savings to support you through your retirement.

Contact us on 01384 671 947 for us to help you make the most of your ISAs and pension plans.  

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Investments and any income from them may fluctuate and can go down, there are no guarantees that you will make a profit. Pension income could also be affected by the interest rates at the time you take your benefits. Tax reliefs will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.