Independent financial advisors Birchwood Investment Management Ltd, based in Welwyn, have said that the latest Budget has sent out a mixed message about personal investment in the UK.
This is the first Conservative Budget since 1996 and the Chancellor began his announcement by saying that the Budget recognised “the hard work and sacrifice of the British people over the past 5 years.”
However, it soon became clear that while some people may benefit from changes, those with a higher income would be penalised by some of the new measures.
Among those likely to suffer following the Chancellor’s announcement, are buy-to-let property investors, who will see a change to the tax relief they receive on costs deducted from profits.
Landlords can currently claim up to 45% tax relief on costs, including mortgage payments. This means that for every £1 of cost they incur, they can cut their tax spend by 45p.
Mr Osborne announced that while landlords will retain tax relief, it will be will be cut to 20% for all individuals by April 2020, significantly reducing the potentials returns from a property investment.
Those with a non-domicile status could also see additional taxes on their gains, after Mr Osborne announced that, as of 2017, permanent non-dom tax status will be abolished. This will mean that anyone resident in the UK for more than 15 of the past 20 years will be required to pay tax at British rates on all worldwide income and gains.
Top earners will also see their annual pension savings allowance cut, meaning those that earning more than £150,000 a year will see their allowance taper away to £10,000 by April 2016, down from £40,000. The amount a person can save within their pension over their lifetime free of tax is also to be cut, from £1.25 million to £1 million, from next April. This lifetime allowance will then increase annually at the rate of inflation from April 2018.
Those who receive dividends from their investment will also be affected as the Dividend Tax Credit will be abolished in April 2016 and a new Dividend Tax Allowance of £5,000 a year will be introduced.
The new rates of tax on dividend income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.
On a more positive note, a family home allowance will be added to the existing £325,000 Inheritance Tax threshold, meaning the total combined tax-free allowance will increase up to £1 million by 2020-21. However, the allowance will be gradually withdrawn for estates worth more than £2 million.
Trevor Simms, Managing Director at Birchwood Investment Management, said: “While there appears to be many people, especially those on middle incomes, benefiting from this latest budget, those on higher incomes seem to be being penalised.
“Those who have concerns about their investments should seek professional help immediately from a Financial Conduct Authority recognised advisor ahead of any changes to their investment.”
For more information about Birchwood, please call 01438 840888 or visit www.birchwoodinvestment.com
