Philip Hammond’s first and last Spring Budget certainly provoked some strong backlash and continues to hit the front pages. Why exactly and how are doctors and dentists most likely to be affected by his announcements?
The final Spring Budget – it becomes the Autumn Budget later this year – promised to build the foundations of a “stronger, fairer, more global” Britain. The previously announced increases in duty on beer, wine, spirits, cider and the new sugar tax have all happened. So what has made this Budget so controversial?
Lower tax-free dividend allowance
The £5,000 a year tax-free dividend allowance – that was only introduced in April 2016 – has been slashed to £2,000 a year from April 2018. Not only will this directly impact directors and shareholders of private companies (including incorporated dental practice owners), it will also affect any everyday investor who has share holdings.
From April 2018, dividends in excess of £2,000 will be taxed at 7.5% for basic rate tax payers, 32.5% for higher rate tax payers, and 38.1% for additional rate tax payers.
Higher National Insurance contributions…no more!
As one of the 4.88 million¹ people registered as self-employed in the UK, I thought I was going to see my Class 4 National Insurance contributions rise from 9% to 10% from April 2018, and then again to 11% in April 2019. If you are a self-employed doctor or dentist, you too would have suffered this increase.
Not any more! The Chancellor has had a change of heart and has now scrapped his plans to increase National Insurance for the self-employed. Phew!
By being self-employed, we do not have holiday entitlement, or protection from legislation including the Working Time Directive, Discrimination or the National Minimum Wage. I don’t know about you but, on this alone, I am happy to see a difference in the National Insurance rate compared to those who are employed.
New stealth tax on estates
Benjamin Franklin purportedly once said “In this world nothing can be certain, except death and taxes”. Never has this been so true!
When you die, the executor of your will may have to apply for a special legal authority before they can distribute your estate according to your wishes. This is called probate.
The process for applying for probate is pretty much the same, regardless of the value of your estate. The current fee for probate is £215 if you are applying directly and £155 if you are applying via a Solicitor.
Whilst this fee is being removed for small estates, another tapered scale of fees is being introduced which will see probate fees rise to £20,000 for estates above £2,000,000. That’s a huge increase not reflected in the work involved.
Pension changes come into effect
Pensions were largely left untouched in the Spring Budget. There were no changes to tax relief, or to lifetime or annual pension allowance rules.
Previously announced changes do though still come into effect this year, whilst others remain in force despite some speculation to the contrary:
- In April 2017, the Money Purchase Annual Allowance reduces to £4,000 per annum (down from £10,000);
- The Tapered Annual Allowance – introduced last year – means that many very high earners will continue to see their annual pension allowance reduced below the standard £40,000 limit.
Is there any good news?
Yes, there is at least some good news! Not necessarily from the Chancellor’s announcements on the 8th March but from what we already know.
Income tax allowance
From April 2017, the income tax allowance is being increased to £11,500 for all but the highest earners. Higher rate tax payers² will see their income tax threshold rise to £45,000 before paying 40% tax.
The current 20% corporation tax rate is reducing to 19% from April 2017. It is then planned to reduce to 17% from 2020.
Capital gains tax allowance
From April 2017, the CGT allowance will increase from £11,100 to £11,300.
New home allowance for inheritance tax
The first phase of the residence nil rate band for inheritance tax comes into play this April.
With deadlines looming to protect your lifetime allowance, the new changes coming in for dividends and savings, and a further raid on the money you intend to leave to your loved ones when you die, never has there been a more important time to review your finances.
They may well need a very thorough spring clean! If you want help reducing the elbow grease involved and softening the blow from all that has changed, do get in touch with one of our specialist independent financial advisers.
What did you personally think of this year’s Spring Budget? Is it controversial? Let us know by adding a comment below
¹ Office for National Statistics; ² Does not apply in Scotland; ³ Can only be used for first time buyers for property, or from the age of 60 to get the bonus