George Osborne has delivered his budget, and the headlines are things like a national living wage, to start at 7.20 an hour next year and rise to 9 by 2020, together with benefits freezes and cuts of 12bn from the annual welfare bill.
But what difference has it made to investors? Well, an increase in the personal tax allowance to 11,000 next year wont leave a lot of extra cash to invest, and neither will the lifting of the 40% threshold from 42,385 to 43,000. Although married couples who are successful in their investing careers will now be able to leave up to 1m to their offspring without paying inheritance tax.
Landlords hit
If you invest in buy-to-let property, your mortgage interest relief will be reduced to basic-rate only and if youre in the 40% bracket, your tax bill is going to go up. One argument is that the current system of allowing tax relief up to an investors highest band gives them an unfair advantage over homebuyers in the investment market, and that the change will level things up but theres an estimated extra 665m a year expected to drop into the tax coffers by 2020/21, with an extra 200m or so a year from the scrapping of the 10% annual wear-and-tear allowance, which is surely the main reason.
And weve already seen one negative effect of this change, with housebuilder shares falling on the expectation that some landlords are going to start offloading some of their properties as I write, Bovis Homes has fallen 3%, Persimmon is down 5%, and Barratt Developments has lost 6%.
Changes to dividends
The taxation of income from dividends is to change too, with the current dividend tax credit scheme to be scrapped and replaced with a personal dividend allowance and new bands of tax beyond that well be allowed a new 5,000 a year tax-free allowance, and then dividend tax bands set at 7.5%, 32.5% and 38.1%.
If your investments are made using a company vehicle, you need to be aware that corporation tax will be lowered to 19% in 2017 and then further to 18% in 2020. So overall, itll be well worth looking at the way you structure your investments, as you could end up paying more tax than you currently do.
Non-doms hit hard
And if youre currently entitled to non-dom status on these shores, that will be coming to a partial end by April 2017. From then, if youve lived in the UK for 15 of the past 20 years, all of your worldwide income will be subject to the same tax rules as everyone else. This change alone is expected to bring in an additional 1.5bn in tax revenue per year.
Overall, this seems like a budget very much aimed at maximising the governments take and reducing its expenditure, and it really doesnt do a lot to help those saving and investing their cash with investors in rental property the hardest hit.
But budget or no budget, the thing to so is just stay calm and stick with an investment approach that we know can bring great long-term rewards.
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.