Financial News

Chaos As Pension And Dividend Tax Plans Dropped

General Election 2017 is leaving taxpayers in financial chaos as the outgoing government scraps changes announced in the last Budget.

Due to a shortage of Parliamentary time to roll new legislation through Westminster before Parliament is dissolved for the June 8 election, ministers have had to slim down some of their more controversial plans.

The first to go, according to notes on the parliament web site are cuts in the money purchase annual allowance (MPAA) and dividend allowance.

The MPAA was £10,000 until April 5, but Chancellor Philip Hammond sliced the limit to £4,000 in Budget 2017 with a start date of April 6, 2017.

Savers and investors in dark

The MPAA is the amount a retirement saver can pay into a pension once they have triggered benefit payments. The allowance is aimed at stopping savers from taking money out of a pension for immediate reinvestment to gain tax relief as fresh pension contributions.

Now, the clause of the Finance Act 2017 confirming the MPAA cap has been dropped.

The government has also axed a cut to the tax-free cap on dividends shareholders can take from a company.

From April 2018, the limit was to reduce from £5,000 to £2,000 a tax year.

Both moves leave savers and investors in the dark about the tax reliefs they can expect.

Financial firms, advisers and consumers would have already changed their plans to accommodate the changes, but now have no idea if they are cancelled for good.

Tories keep quiet about plans

The fear for many is if they go back to the current caps, they may face retrospective tax if the new Chancellor changes the rules again, but if they don’t take up the allowances, they may face additional tax unnecessarily.

Former pension minister and Royal London, director of policy Steve Webb said: “The situation is confused. Technically, the £10,000 allowance is still in place but IFAs would be unwise to advise their clients to make use of the full allowance as there is always the danger that the Conservatives, if re-elected, would introduce the change retrospectively.”

No comment from the government keeps everyone guessing and accomplishes the same result as imposing the legislation while removing contentious manifesto issues.

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