Posted by: WealthIFA | March 26, 2010

Financial News Update we 26/3/2010

So how was it for you? Perhaps you feel, as many do, it was the calm before the storm as, no doubt, there will be another as soon as we find out who is ruining, sorry running the country?!

Although there were no great surprises, as most of the announcements had already been made, there were some good, as well as some not so good, news from Wednesdays budget.

Income Tax

The fact that the Personal Allowance & Higher Rate Tax Threshold was frozen may mean that more people will fall into higher rate tax (40 per cent) purely because of normal increments in pay.

Although previously announced it is worth reminding of the new 50% top rate on income over £150,000 (dividends rate is 42.5%) as this will obviously mean the need for proper advice is increased too.

Some of the more pertinent announcements and the planning opportunities for those affected could include:

Estate Planning

  • IHT Nil Rate Band – frozen at £325,000 and this will apply for the next 4 years which may mean if/when assets recover more people will be caught by IHT. Planning for the impact of IHT will remain an important aspect of advice for many people.
  • Entrepreneurs Relief – doubled to £2m enabling a greater saving against CGT for those business owners who sell.
  • CGT rate 18% – this was somewhat of a surprise given the increase in income tax rates so perhaps those affected by the higher rates should certainly consider investing for capital growth as opposed to income even if only to use their CGT annual exemption of £10,100.
  • Tax Rebates paid by the beneficiaries of settlor interested trusts may have to be paid into the trust i.e. if the beneficiary is the settlor and pays a lower rate of tax than the trustees. However, this additional payment to the trust is not subject to Inheritance Tax.

Retirement

  • Tax relief on investments, i.e. pensions. Even where the new anti-forestalling rules apply making sure contributions of up to £20,000 (£30,000 in some cases) are paid in 2009/10 and 2010/2011 are used to qualify for full higher rate tax relief.  Anyone with relevant income below £130,000 should perhaps consider how to maximise pension contributions as this limit could be reduced in the future?
  • Reducing Income through Pension contributions (Salary Sacrifice) as the Personal Allowance will be restricted by £1 for every £2 of taxable income over £100,000 – effectively a 60% rate of tax for those with income between £100,001 and £112,950.
  • Lifetime Allowance freezing may be of particular significance to those whose pre A-Day protected tax free cash benefit could be gradually whittling away.
  • As noted above those with relevant earnings above £150,000 will find restriction in the tax relief on pension contributions. The definition of relevant income includes employer pension contributions where income excluding this is £130,000 or more.

Investments

  • Maximise the use of reliefs, exemptions and lower bands of income tax with transfers to spouses/civil partners.
  • ISA’s may prove even more valuable as tax rates increase and with the ISA limit increase to £10,200 per annum (for all investors from 6 April 2010), the ability to shelter more can only be a good thing?
  • Offshore Bonds Investments (which offer gross roll-up and control over the time of tax payment) may also be attractive for some.

Other points to note

  • National Insurance – increase by 1% for the self employed, employees and employers from April 2011.
  • Stamp Duty Land Tax – increase for properties over £1,000,000 to 5% from April 2011 and a nil rate band for first time buyers up to £250,000 for the next few years.
  • Possible moves to bring AIM shares in line with the advantages of an ISA investment

If you spotted any others please do let me know?

Oh well, now we just have the election hype to contend with!!

Have a good weekend…

Regards
Kieron

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