Pension Drawdown Allowance Backdated Cut.
In a written statement to the House of Commons and the House of Lords, Mel Stride, The Financial Secretary to the Treasury, has confirmed that the original tax changes of the Finance Bill 2017 (the Budget in March 2017 to you and us) will be made law after the summer recess (another long holiday for MPs to you and us).
Why is this important? The Finance Bill 2017 was watered down and amended with many tax changes being withdrawn as a snap election was called.
These are now back on the agenda following the statement yesterday.
So what was in the Budget that got dropped?
Money Purchase Annual Allowance
If you have taken pension benefits in flexible drawdown form (does not apply to taking the tax free lump sum only) then you were restricted to be able to pay £10,000 per year in new/further pension contributions. This was supposed to fall to just £4,000 pa in April 2017 and was then withdrawn. This is now back on the agenda as part of the new Summer Finance Bill meaning that the reduced MPAA will be back dated to 6 April 2017, so if you are in drawdown taking pension benefits, beware that you cannot pay as much in new pension contributions as you used to. If you have already paid more, i.e. assuming that the £10,000 limit was safe, you may face tax penalties.
Currently, we have a yearly tax free dividend allowance of £5,000. As part of the Budget and original Finance Bill, this was to be reduced to £2,000 pa from April 2018. This was withdrawn, but again it now looks like this could be back on the agenda. If you own shares in a limited company, investment trusts or sock market linked unit trusts, consider this a warning.
Other Notable Inclusions
The Finance Bill will also include legislation for the Making Tax Digital (MTD) programme for businesses. Businesses will not be legally required to use the MTD system until April 2019 and then only to meet VAT obligations. This will apply to businesses with turnover above the VAT threshold. Businesses with turnover below the VAT threshold will not be required to use the system but can choose to do so. Businesses will also be able opt in for other taxes, benefitting from a streamlined, digital experience. It is likely that by 2020, after the initial wave of businesses using the MTD system, all businesses will be required to use it.