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Finance Act 2017 (2): What does this mean for your clients?

The first Finance Act of 2017 went through Parliament at break-neck speed due to the 2017 snap election. Several clauses were dropped to enable a stripped-down bill to pass before Parliament broke for the election.  Since then, some of the dropped clauses have been re-introduced, and the Finance Act 2017 (2) received Royal Assent on 16 November.  
So which clauses have the government resurrected and what do our clients need to know?

Some Key clauses reintroduced

  1. The reduction of the Money Purchase Annual Allowance (MPAA) from £10,000 to £4,000. This has been backdated to April 2017 so clients who have accessed their defined contribution (DC) pension benefits flexibly, taken income, and contributed over £4,000 this tax year, could have an annual allowance charge.

Now is a key time to speak to your clients who have triggered their MPAA and who have already contributed, or are considering contributions, to their existing DC pension schemes.  Remember that the MPAA only applies from the date that DC benefits are flexibly accessed, so any contributions paid before that date are subject to the full annual allowance, including any carried forward.  Unused annual allowance cannot be added to the MPAA.
For those clients who have triggered the MPAA but may also have defined benefits (DB) pensions, they retain an alternative annual allowance of £36,000, or more where they have unused annual allowance to carry forward, in respect of their DB scheme membership. Care must be taken where the client’s total pension savings are close to the lifetime allowance.
2.The reduction of the dividend allowance from £5,000 to £2,000 from tax year 2018/19.
This will be introduced from 6 April 2018, but planning with clients should begin now. The effect of this reduction will impact a number of clients in different ways. Below is a table illustrating the effect that this change could have on your client’s unwrapped portfolio:

Unwrapped portfolios


£5,000 Dividend allowance

£2,000 dividend allowance










Source: Technical Connection
Depending on the client’s rate of tax, this could mean that they will pay more tax next year, depending on what other income they have.  It is also important to remember that the dividend allowance will not reduce the total income for tax purposes, it is just charged at 0%.  Hence, a basic rate taxpayer could be pushed into higher rate tax with this additional income.
3.Legislation to implement the “Making Tax Digital” initiative.
The government’s aim is to make it easier to report and keep track of taxes that you have paid and could be due by storing information in one place, thus reducing the need to send repeated information on different forms.
4.Legislate for those affected by disproportionate gains.
This refers to the ability for those who create disproportionate gains on investment bonds to have their tax bill reassessed on a just and reasonable basis. This is done by writing directly to HMRC who will review the case and decide whether the tax bill can be reduced. The application should be made within four years of the year the tax charge was made, though it may look at claims outside this period depending on the particular aspects of each case.
5.The new trading and property income allowances of £1,000.
Where the allowances cover all of an individual’s relevant income (before expenses) then they will no longer have to declare or pay tax on this income. Those with higher amounts of income will have the choice, when calculating their taxable profits, of deducting the allowance from their receipts, instead of deducting the actual allowable expenses. The trading allowance will also apply for Class 4 National Insurance contribution purposes.
The new allowances will not apply to partnership income from carrying on a trade, profession or property business in partnership.
The allowances will not apply in addition to relief given under the Rent-a-Room Relief legislation.
6.Changes to rules on deemed domicile for non-domiciled individuals.
Rules relating to the deemed domicile limit for non-domiciled individuals have changed from 17 out of 20 years, to 15 out of 20 years. This will affect non-domiciled UK resident clients who are currently paying income, capital gains and inheritance tax on a remittance basis. This is backdated to 6 April 2017, so clients who will now, or could in the future, be affected by this rule change, will need to take specific tax advice on their overseas assets.
7.The income tax exemption to cover the first £500 of employer-funded pensions advice.
This can be provided to an employee (including former and prospective employees) in a tax year and is effective from 6 April 2017. It covers advice on pensions, and general financial and tax issues relating to pensions, allowing individuals to make more informed decisions about saving for their retirement. The changes replace existing provisions which limited the exemption solely to pensions advice, and was capped at £150 per employee per year. The increased limit is already excluded from the scope of NICs.

For further information on the Finance Bill 2017 (2)

What next?

As you know, every recommendation given to your clients, needs to fit that individual’s circumstances at that particular time.  Although we are still awaiting the finer details from the Autumn Budget 2017, some of these provisions have been backdated to the start of the current tax year and so there could be clients who may have time sensitive planning to do before tax year end. These clients may need your advice sooner rather than later.
We hope this has given you some food for thought and if you wish to discuss the content of this article please contact your regional sales manager.

This note is to be used by Financial Advisers only. It is not intended for onward transmission to a private customer and should not be relied upon by any other person. Sanlam accepts no liability for any action taken or not taken by an individual or firm as a result of the contents of this material. The tax treatments and information contained in this document are based on current tax law and HMRC practice as at December 2017 and may be subject to change in the future. Whilst we have made every effort to ensure the accuracy of this material, we cannot accept responsibility for any consequence (financial or otherwise) arising from relying on it. This document is for information purposes only and should not be treated as advice and independent taxation advice should always be sought.

Investing involves risk and the value of investments and the income from them may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.