No reforms of substance to personal tax in Spring Budget - are we just treading water?
08 March 2017
Philip Hammond looked like he enjoyed today, the second in a trilogy of set piece economic events in the space of 12 months. As expected, very little was announced on tax, aside from the change to national insurance for the self employed. The Chancellor was clearly keeping some of his powder dry with the triggering of Article 50 around the corner.
In many respects the tax system feels like it is treading water, with no reforms of substance to personal tax, and little progress on the journey to a simpler tax system. Taxpayers will be keen to see whether a lower tax, digitally enabled system for post Brexit Britain begins to emerge in the Autumn Budget later this year. The three areas from today that struck me were:
Dividend allowance cut
The Chancellor announced a cut in the dividend tax free allowance from £5,000 a year to £2,000 a year. This surprising cut in an allowance which is new to our tax system is somewhat of a kick in the teeth to his predecessor. The cut will disappoint those who crave a simpler tax system, and will mean a tax rise for those who receive dividend income, and may pull some back into self assessment. Taxpayers should look to maximise using ISAs for their investments, given the now very generous ISA limits.
Personal Allowance and tax rates
The personal allowance and basic rate band continue their journey to the election manifesto targets of 12,500 and 50,000 respectively, with previously announced rises confirmed. Whilst a rising personal allowance means that most taxpayers earning less than £100,000 will pay less tax, it does not help those workers - like part-time employees - already earning less than the current personal allowance. And with national insurance clearly a favourite revenue raiser, there seems no short-term hope of the lower earnings limit for national insurance rising to match the personal allowance any time soon.
NS and I Investment Bond final rate
The Chancellor announced a rate of 2.2% of savings up to £3,000 for the new NS&I Investment Bond. In my view the new NS&I bond is another option in an increasingly crowded tax free savings product marketplace. Alongside the various ISAs, pensions and other tax free savings, taxpayers now have a wide range of products to choose from, and the vast majority of savers should now be able to structure their savings in a tax effective way.