Well, the highlight of the day was most certainly Mrs Badenoch’s dressing down of the Chancellor. Like a Jack Russel, the leader of the opposition wouldn’t let her opponent off the hook – and for once it really was most entertaining and skilful.
But what did the Budget do for our clients and how will they be affected?
I must be honest, my initial reaction to the budget was one of relief after last years demolition of Farmers and Small Businesses. It felt a little ‘tamer’ this year.
Nonetheless, before I breathed a sigh of relief – I then considered the detail and it isn’t good news again for those trying to save or make a business work.
Dividend Tax Increase:
A real ‘kick in the teeth’ for investors will be the reduction of the dividend free allowance that used to be £5,000 to just £500. This will be coupled up with an increase to all levels of dividend tax by a further 2% in just five months’ time.
Entrepreneurs who have slogged away to build a business and already paid 25% corporation tax will now be paying around 35.75% further tax on higher rate dividends they decide to draw from their business. That’s a combined rate of over 60% before we get into the impact of losing a personal allowance etc.
This rise in dividend tax will also affect clients who are invested into Collective Investment Accounts (CIA’s) as their dividends (even when reinvested) will face greater tax.
Our counterattack to this increase will be to again consider the use of Life Assurance Bond planning and possibly Pensions for clients with larger CIA’s. Thankfully, our dedicated ‘ISA wrapping’ of CIA assets for our clients over the years has really helped them avoid the worst of todays dividend tax rise.
Cash ISA ‘shrink’:
The new Cash ISA allowance will be just £12,000 unless you are over 65 – then it is £20,000. Confused yet? You will be. What happens if you turn 65 in the tax year but want to put £20,000 into the cash ISA before 65? The good news is that our clients use Stocks and Shares ISA’s which will remain at the £20,000 level.
Save a bit more for the Chancellor:
Keeping your money in cash savings without an ISA is about to get more expensive, with a special savings rate of 22% 42% and 47% from April 2027. That means that folk who have savings will actually pay more tax on their interest than they will on salary or pension income.
Landlords bite the dust?
The last few years have been really hard for landlords with rising red tape, regulation, taxes and costs making it much less attractive to rent a property to someone who is not yet able to buy. The increase today in tax on landlords also to rates of 22%, 42% and 47% may be the closing bell for some of them. Watch the property market continue to creak from here.
Pensions still on the rack for IHT:
Your pension pot will still be added into your estate for Inheritance Tax purposes from April 2027.
However, the tax treatment of the pension pot whilst you are alive is still really attractive, both in terms of underlying tax and the 25% tax free cash lump sum.
Thank goodness our clients listened to us and didn’t ‘panic draw’ their tax-free cash for no good reason.
Salary Sacrifice Schemes to be capped:
For many years, employees have been able to agree to sacrifice their income now in return for a greater pension in later years. This move benefits both employer and employee. It also benefits the later welfare state as more people can sustain themselves in retirement without the need for Pension Credit or other state assistance. This act is now to be capped at £2,000 – closing down another incentive for people to save.
Summary:
So, in conclusion, today’s budget wasn’t as horrific as the last one – but it does really ‘turn the screw’ on investors, business owners, landlords and savers.
My advice would be not to panic. Knowledge is power and ultimately there could be ways to restructure your income or investments to try and reduce the impact of today’s budget. That’s where we can help!
We will be recording a special Podcast session with none other than the legendary Rachael Ball – Director at LHP Accountants – next week. During this session, Rachael and I will be delving deeper into some potential ways to help reduce the tax impact and some traps to just look out for. Stay tuned to ‘Your Money Talks’ for this important update.
In the meantime, we are here for you. I completely realise that things feel absolutely awful right now – but it seems to me that we may actually be ‘turning a corner’ in terms of the things the Chancellor can further do to make our lives any harder!
For now, I’m off to bed to chuckle at the ‘Laurel and Foolhardy’ pitch from Mrs Badenoch – it was quite a show!
Darren 
