When Philip Hammond took to the House of Commons to present his first Spring Budget, he was also presenting his last. The annual Budget will now take place in the Autumn, which means this year, the year of Article 50, there will be two Budgets.
A strong economy
Given that the UK has voted to leave the EU, many have been waiting for the, what some might call inevitable, drop in growth expectations. But instead the Chancellor got off to a cheery start. Employment is at a record high, unemployment an 11-year low, and the Office for Budget Responsibility has revised UK 2017 growth prospects up to 2%.
Dividend tax rise
One of the big surprises of the Budget was the reduction in dividend tax breaks. The tax-free allowance will over half, from £5,000 to £2,000. This will impact director shareholders of private companies and those with share portfolios, likely over the value of £50,000.
It is estimated that the change will hit 2.3m people in 2018-19, losing an average of £315 each. Once the threshold is reached, dividend income is taxed 7.5% for basic rate taxpayers, and 32.5% for higher rate taxpayers, additional rate taxpayers pay 38.1%. This increases the importance of using a stocks and shares ISA where possible to allow your investments to grow as tax efficiently as possible.
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Little in the way of news for savers
This wasn’t a Budget for savers who are facing rising inflation and record low interest rates. In the absence of real returns on many cash savings products, investments in financial markets are now a more attractive option for savvy Brits.
The Chancellor’s continued clampdown on tax avoidance in today’s Budget suggests that Brits will be best served by continuing to focus on simple and transparent investment solutions like Stocks and Shares ISAs.
Particularly given the more than 30% increase to the annual ISA allowance from £15,240 to £20,000, which is coming in to effect in April. Today’s Budget provides a timely reminder for people to maximise their ISA, both before this year’s allowance expires on 5 April and also to get a plan in place for next year.
The government has now placed the onus on the individual to make the most of allowances available to them.