What Does The New Goverment Mean For Your Personal Finances?

What Does The New Government Mean For Your Personal Finances?

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December 2019
What Does The New Government Mean For Your Personal Finances?
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The Conservatives pledged not to increase Income Tax, VAT or National Insurance. The one tax cut promised was in raising the earnings level at which employees must pay National Insurance from £8,632 to £9,500. This will save each employee £100 per year. The ambition is to continue to increase this threshold to £12,500 over the next 5 years.

Lower Earners

The Conservatives have promised to look at the anomaly which means that many lower earners earning below £12,500, who pay into their workplace pensions, via the net pay method, do not benefit from the 20% tax relief available to boost their pension savings.

Marriage Allowance

This will continue to be available but would have been abolished by the Opposition parties. The allowance enables a non- taxpaying spouse or civil partner to transfer 10% of their income tax allowance to their spouse or civil partner, if he or she has income of less than £50,000. This is worth £250 per year and can be backdated for 4 years so could be worth over £1,000 immediately.  3.9million couples are eligible for this tax perk but many have not yet claimed.

Capital Gains Tax

No change here, a relief for second home owners, buy to let landlords and those who have shares or other investments not in a tax- exempt Individual Savings or pensions wrapper. The first £12,000 of any gain will remain exempt. The tax rate applying will then be 10% to 20% for basic and higher rate taxpayers with 18% and 28% applying to property sales not a main residence.

While the Conservatives have not announced any changes, this tax was excluded from the list of taxes which will be frozen. If the country’s finances get tighter, there is the possibility of this tax increasing. A Government with a large majority and 5- year mandate is likely to deliver tax increases in the early part of its term, and to cut them nearer to the next General Election.

Those with assets subject to capital gains should utilise the annual exempt allowance of £12,000 on a regular basis, so that gains can be realised tax free. This allowance lapses each year if unused. 

There is no change in the tax -exempt Individual Savings Account in which £20,000 of investments can be sheltered each year so that no tax is payable on the income or gains arising thereafter.

Inheritance Tax

The Conservatives are committed to making this tax one which affects fewer taxpayers.  From April 2020 couples who are homeowners, with estates below £2 million, will be able to pass on £1million from their estates tax free to their direct descendants.

However, the Conservatives are considering reviewing tax on lifetime gifts.  The Office of Tax Simplification (OTS) has proposed reducing the time over which lifetime gifts remain in the donor’s estate from 7 years to 5.  The OTS would however abolish the tapering of the gift’s value by 20% per year after the first 3 years, so that the 5-year point would create a cliff edge before which full 40% tax would apply and after which no tax would be payable.

 It recommends combining several allowances which make certain lifetime gifts exempt from tax, into one annual allowance. The manifesto did not indicate which of these recommendations, if any, would be adopted.

Those wanting to help family members with lifetime gifts may wish to consider making exempt gifts now. For example, gifts made from surplus income on a regular basis are exempt, with no 7 -year waiting period. Everyone can gift up to £3,000 per year as one-off gifts which are exempt and carry forward the previous year’s allowance.

Pensions Savings Tax Relief

Most taxpayers have an allowance of up to £40,000 per year for pension savings which attract tax relief at their highest tax rate.  The Lifetime Allowance, expected to be £1,075,000 from April 2020, caps the overall level of tax-exempt pension savings available.

The manifesto was silent on this, but the Government announced that the NHS would pay the tax bills of staff affected by the annual allowance taper.  This lower allowance for pension savings applies to those with incomes over £110,000. It is unusual for a Government to exempt one group of workers from a tax that applies to others, so this too could be scrapped, paid for by a lower annual allowance for all or a flat rate of tax relief applying to all taxpayers. The Budget in February/ March may shed more light on the Government’s policy.  

Kay Ingram
Director of Public Policy, LEBC Group  

Please remember, no news or research item is a recommendation or advice to buy. LEBC Group Ltd is not responsible for accuracy and may not share the author’s views. The contents of this blog are for information purposes only and do not constitute individual advice. All information is based on our current understanding of taxation legislation and regulations. The Financial Conduct Authority does not regulate estate planning, tax advice, wills or trusts.   

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