Why The Budget Really Matters To You

Why the Budget really matters to you

Accountants find Budgets interesting, but others may not. Life’s too short to pore over the Chancellor of the Exchequer’s latest conjuring tricks. You learn, over the years, to suspect that any rabbit he pulls out of his hat will later turn out to have myxomatosis.

However, if you can put your natural aversion to one side for a moment, there are four areas in last month’s Budget that do have potentially important implications for you and your pension planning and are worth a closer look.

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  • First, there’s been an uplift in the personal income tax allowance – the amount of income you can receive, before you have to start paying tax. The new level is going to be £12,500 a year, up from the current £11,850. This is good news for some clients because it means they can bring home more money from whatever source they earn it. Also, people who’re in retirement and already using their pensions can now draw from those pensions at a higher level without giving the taxman a share. So, for our clients who’re using  phased drawdown to receive their pension income, from April next year – when Budget changes come into effect – we’ll be able to increase the amount that they take before they pay tax. Even if you don’t need to maximise the amount you take out of your pension, it’s still important that you should draw your full tax free allowance, because even if you don’t need it in that year, we still encourage the recycling of pensions to use the extra money to get more tax back from the government. Every client's circumstances are different and one recommendation does not suit all. This is something we’ll be dealing with in detail in our New Year Tax Planning Service which starts in April 2019. This is a popular programme we’ve been running for a number of years.
  • The second point, of interest to wealthier clients, is that the pension Lifetime Allowance is rising from £1.03m to £1.055m. Our clients who’re lucky enough to have this level of pension pot can now invest the proceeds and generate higher returns without the risk of the government taking 55% of those gains.
  • Third. There’s no change in the annual contribution levels qualifying for tax relief for pensions and ISAs. These remain at £40,000 (reduces for high income individuals) and £20,000 respectability. While there has been no change, this is a case of no news is good news, because it had been widely rumoured that the Chancellor was going to reduce the tax relief for higher rate taxpayers. Bear in mind however, sometimes you can pay more than this and advice is always recommended. Next year, at Reeves, we’ll be repeating our end of year tax planning campaign which starts in February. With client's consent, we’ll be able to repeat last year’s programme where clients could pay up to their full allowances into their pensions and ISAs. If you want to be registered for this service, make sure you get in touch with your Reeves client account manager.
  • Fourth and finally, the Chancellor has raised the threshold on the level of earnings before you have to pay 40% tax. The key impact of this on pension planning is that you’ll now be left with more money after tax, which you can pay into your pension to save for your retirement.

It is important that no actions should be taken without first taking advice. Personal circumstances and an individual's appetite for risk means that the advice for one person may not be the same for everyone. The information in this blog or any response to comments should not be regarded as financial advice. Reeves do not advise on Defined Benefit pension schemes. Reeves do introduce a third party specialists in areas of work we do not cover. ​​Information is based on our understanding at November 2018.

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About the Author

By Nigel Reeves: My mission is to provide the quality, honest & jargon-free pension advice that people need to secure the retirement they deserve. At home, I'm a family man and an active supporter of grassroots sports!

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