Don’t expect definitive answers on every topic, especially pensions, from your Independent Financial Adviser (IFA) over the next few months.
They are not being vague or non-committal; it’s just that George Osborne, the Chancellor of the Exchequer, has many changes in the pipeline.
While those areas have been highlighted recently, especially in the autumn statement, it is impossible to make a valued judgment until the “small print” has been studied carefully.
Osborne is not the first chancellor whose deliberations are really determined by the “devil in the detail”!
Pensions again are in the spotlight.
Many thought that Osborne’s pension revolution had run its course with the new freedoms granted to those with pension pots. But the chancellor is now focusing on those saving for pensions and the Treasury has flagged up some potential fundamental changes.
The radical suggestion is that the money invested would be “taxed” income; traditionally, one of the big attractions of pensions has been the fact that money gets tax relief on the way in – and is taxed on the way out.
The chancellor announced a “pension tax consultation” in the summer budget and the results were expected later in the year. But, recently Osborne announced: “It is a completely open consultation that will lead to a genuine Green Paper; we will respond to that consultation fully in the Budget.”
It had been anticipated that a flat-rate of tax relief for pensions – perhaps £1 for every £2 invested – would be introduced to reduce the benefits to high earners. Yet the chancellor promoted the idea of a pension ISA at the summer budget, which would mean no tax implications for that pension pot when accessed.
The main flaw to that idea would seem to be the reluctance of those in their 20s and 30s to invest money already taxed for a pay-out decades down the line.
The pension industry was also less than excited by such a change. While highlighting the difficult of getting youngsters to save without a tax incentive, their main concern was that future governments would find some way of going back on earlier promises not to tax that pension income.
All will be revealed in next year’s budget, as will more details of many other changes trailed in the autumn statement that are in the chancellor’s sights.
One that could especially impact on the self-employed – of which there has been a growing number since the recession of 2008 – and landlords, a recent favourite target of the chancellor’s.
Her Majesty’s Revenue & Customs (HMRC) is planning to give most taxpayers a digital tax account. Using free apps and software, you will be able to see your tax position online and access the account.
Whether this was always planned as an extension of self-assessment is not clear. The annual flurry to get your financial records in place could be replaced by a quarterly rush to keep your online tax account up-to-date. The self-employed and landlords will be expected to input all income and expenses every three months.
For those who feel there is already too much “red tape” this is not good news. The lucky ones are employees and pensioners who will not be required to join this new technological world – unless they have another source of income paying more than £10,000 annually.
These individual tax accounts will lead to automatic tax bills. HMRC will assess your bill on information it already holds, in effect replacing self-assessment with HMRC assessment.
This new approach will be for those the HMRC reckon have “simple” tax affairs. If you do not challenge the HMRC bill within a set period, it becomes final and the tax will be collected.
There could be good news for those who missed out on the new pension freedoms, having already bought an annuity. It was announced at the time that there was a plan to create a second-hand annuity market.
This has taken longer than expected, but details should be announced in the next budget. Swapping future income for cash today is a complicated equation and it is one area that the individual will need the specialist advice of an IFA.
One future change that did grab the headlines related to a new time limit on paying Capital Gains Tax (CGT). This was because it impacted on landlords, already under the cosh because of the chancellor’s actions.
Property that has been your personal private residence (PPR) is not liable for CGT, but a second property is. Currently, CGT is calculated at the end of your tax year because it may involve losses (shares, etc.) in addition to a property gain. Then there is your annual CGT allowance to take into account and all this is brought together in your annual tax return.
Now the chancellor wants any gains made from the sale of a second property to be paid within 30 days. That sale alone may involve complicated calculations – costs such as legal fees, other fees, stamp duty and renovations – more especially if the property has been your main residence for a while.
How all this is going to work, and whether your annual CGT allowance can be used at this point, remains to be seen and clarified. Landlords are not the only one who will be reading that small print extremely carefully!
For a free, no obligation initial chat about your individual finances, call us on 0800 0112825, e-mail info@wwfp.net or take a look at our website www.wwfp.net.
The value of shares and investments can go down as well as up. Your home may be repossessed if you do not keep up repayments on your mortgage.
Worldwide Financial Planning Ltd who are authorised and regulated by the Financial Conduct Authority. 'The FCA does not regulate Credit Cards, Will Writing and some forms of mortgage and Inheritance Tax Planning.'
Information given is for general guidance only, and specific advice should be taken before acting on any suggestions made.
All information is based on our understanding of current tax practices, which are subject to change.
For the purposes of mortgage Worldwide Financial Planning is a credit broker and not a lender.
