How The New Budget Affects Your Personal Finances
The Government’s new budget is hardly an exciting topic, but if you care about your finances (and I’m assuming that if you’re reading this blog then you do), understanding the new budget and the key changes is a good idea.
In this post I am going to talk about the key points in the budget that might be impact individuals like you, who care about looking after their finances, investing their money and maybe some day retiring.
If you want to see the full summary of budget changes you can read the facts and figures at a glance in this budget tax guide that we have put together for you.
A Tax Free Dividend Allowance
In the new budget there will be a £5000 dividend allowance, after which dividends will be subject to income tax – the amount depending on your personal income tax level. This has several implications for investors:
If you are a business owner, you may well be paying yourself a dividend instead of a wage in order to minimize tax. Unfortunately this benefit will be watered down now. However, if you are married, you may be able to share with your parner to maximize your allowance.
For personal investors, making the best use of your ISA allowance is important, as dividends within an ISA are unlimited and will not count toward your allowance. For this reason, it makes sense to put your highest yield investments in an ISA, to maximize the benefit.
You can read more about the dividend tax shake up in this article on This is Money.
Pension Tax Relief Reduced
If you are a high earner (earning more than £150,000) you can currently pay upto £40,000 into a pension each year tax-free (meaning you gain back your income tax). But in the new budget this allowance will be reduced to £10,000.
Tax Changes For Landlords
A couple of changes will impact landlords in a negative way. This is worth keeping in mind if you are considering investing in property (or already do!)
The first change is that the tax-relief on mortgage interest will be reduced to basic tax level. Currently landlords with buy to let mortgages can claim the interest they pay on their property mortgages against tax, but now that allowance will only be offset at the level of basic income tax.
Another change is that in the past, landlords could claim up to a 10% wear and tear allowance as a cost of renting out a property. But now they will instead have to claim actual expenses as and when things need paying for. This arguably makes more sense but the reality is that the 10% allowance was generous in most cases and therefore this will mean more tax for property investors.
No More Tax Returns!
Finally, this isn’t so much a change to tax rates, but a change that will improve the lives of many people. In the next 5 years the government plans to abolish tax returns, instead creating an online tax account which will be updated automatically.
So if you are self-employed this will be a huge relief. If you are not, this is another great reason to take the leap and go into business for yourself!
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