08 Mar 2017

Greg Moss, Senior Wealth Adviser, considers some of the initial changes following the Spring Budget for private clients.

Continuing crackdown on tax avoidance schemes

Hammond confirmed his commitment to closing the 'tax gap' by clamping down on avoidance schemes. New measures will include financial penalties for professionals who recommend tax avoidance arrangements which HMRC later defeat. It was already clear that tax planning outside the accepted mainstream is under close scrutiny and that aggressive schemes are ripe for attack. This confirms the relative attractiveness of established tax planning measures and the importance of getting good advice on these before you consider more aggressive options. It seems sensible to also make professionals bear some of the cost of failed schemes, if this helps align the risks for client and adviser and reduce moral hazard.

Tax increases for the self employed

There were further measures to withdraw tax advantages enjoyed by the self-employed and company directors. For example, the main rate of National Insurance will rise for the self-employed while company directors will see a reduction in their tax free dividend allowance, from £5,000 to £2,000, from April 2018. This means other forms of profit extraction are likely to become more attractive to owner/managers of businesses, such as employer pension contributions.

Dividend tax increases for investors

Private investors will also be affected by the reduction in the tax free dividend allowance. This highlights the attractiveness of tax efficient wrappers such as ISAs and pensions for holding dividend-producing investments and may require a rethink as to the balance between dividend and growth oriented holdings and the division of ownership of shares, for example by spouses.

New market leading NS&I product

New issues of NS&I bonds have become the go-to tactic for Chancellors to inject some positivity into proceedings. Hammond obliged by unveiling a new Savings Bond paying 2.2%, which will be among the best rates around and therefore very popular with savers. However, the catch is the limit will be low, at £3,000.

Overall this had the feel of a don’t scare the horses budget, with no big surprises of the sort George Osborne's favoured. Tinkering with the dividend tax rules again is frustrating, given they are relatively new anyway and many clients have restructured their affairs to reflect the current allowances. On the other hand, talk of more big changes to pension rules seems to have receded, which is a good thing, as a period of stability is what our clients need after several years of sweeping changes.