People planning their retirement will be able to withdraw up to £1,500 from their pension pots tax-free to pay for financial advice, under recent plans unveiled by the government.

The new Pension Advice Allowance, first announced at Autumn Statement 2016, will enable people to withdraw £500 up to three occasions from their pension pots tax-free to put towards the cost of pensions and retirement advice from April 2017.

Following an 8-week consultation, the Economic Secretary to the Treasury, Simon Kirby, has today confirmed that the £500 allowance:

• can be used a total of three times, only once in a tax year, allowing people to access retirement advice at different stages of their lives, for example when first choosing pension or just prior to retirement
• will be available at any age, allowing people of all ages to engage with retirement planning
• can be redeemed against the cost of regulated financial advice, including ‘robo advice’ as well as traditional face-to-face advice
• will be available to holders of “defined contribution” pensions and hybrid pensions with a defined contribution element, not “defined benefit” or final salary type schemes

Pension providers will be able to offer the allowance to their members from April 2017.

Research has found that when approaching retirement only 22% of people know the value of their pension pot and only 14% of people would be confident planning their retirement goals without financial advice.

According to Unbiased, UK savers with a pension pot of £100,000 save an average of £98 more every month and receive an additional income of £3,654 every year of their retirement if they take financial advice.

Buy-to-let property owners have been singled out in recent budgets for some quite draconian tax changes.

One of the most pervasive starts 6 April 2017. From this date, tax relief for the cost of borrowing – predominately interest charges – will be progressively withdrawn and replaced with a basic rate tax credit.

Between now and the 6 April 2020 relief will be tapered as follows:

A worked example: consider the case of Linda, who has a buy to let with an annual mortgage interest charge of £10,000. Up to April 2017 she will be able to deduct the full amount, £10,000, from her property income before she pays tax. Obviously, the higher her rate of income tax the more tax relief she will currently receive.

The table below sets out the effective loss of tax relief if Linda is a higher rate or additional rate taxpayer. If Linda only pays tax at the basic rate there is no change in her income tax position.

Because the amount of tax relief is gradually reduced, from April 2017 to April 2020, the cash flow impact is progressively negative for higher rate or additional rate tax payers. In our example, if Linda is a higher rate taxpayer her net finance costs (after deduction of tax relief) increase from £6,000 in 2016-17, to £8,000 in 2020-21.

A further consequence of this change is that the rental income for tax purposes increases with no increase in rents: the finance costs are added back. In some circumstances this may mean that basic rate taxpayers become higher rate tax payers.

Buy-to-let property owners who have not yet considered how this change will affect their property business should set aside some time with their advisors as soon as possible. We would be delighted to help.

A reminder that from 6 April 2017 Lifetime ISAs are available as an alternative tax-free investment.

The lifetime Individual Savings Account (ISA) is a longer term tax-free account that receives a government bonus.

Details published 17 February 2017 are:

You can open a lifetime ISA if you are aged 18 or over but under 40. You must be either:

• resident in the UK
• a Crown Servant (for example a diplomat or civil servant)
• the spouse or civil partner of a Crown Servant

As with other ISAs, you won’t pay tax on any interest, income or capital gains from cash or investments held within your lifetime ISA.

Saving in a lifetime ISA

You can save up to £4,000 each year in a lifetime ISA. There is no maximum monthly savings contribution, and you can continue to save in it until you reach 50. The account can stay open after then but you can’t make any more payments into it.

The £4,000 limit, if used, will form part of your overall annual ISA limit. From the tax year 2017 to 2018, the overall annual tax limit will be £20,000.

For example, you could save:

• £11,000 in a cash ISA
• £2,000 in a stocks and shares ISA
• £3,000 in an innovative finance ISA
• £4,000 in a lifetime ISA in one tax year

Your lifetime ISA won’t close when the tax year finishes. You’ll keep your savings on a tax-free basis for as long as you keep the money in your lifetime ISA.

Lifetime ISAs can hold cash, stocks and shares qualifying investments, or a combination of both.

Government bonus

When you save into your lifetime ISA, you will receive a government bonus of 25% of the money you put in, up to a maximum of £1,000 a year.

Withdrawals

You can withdraw the funds held in your lifetime ISA before you’re 60, but you’ll have to pay a withdrawal charge of 25% of the amount you withdraw.

A withdrawal charge will not apply if you are:

• using it towards a first home
• aged 60
• terminally ill with less than 12 months to live

If you die, your lifetime ISA will end on the date of your death and there won’t be a withdrawal charge for withdrawing funds or assets from your account.

Transferring a lifetime ISA

You can transfer your lifetime ISA to another lifetime ISA with a different provider without incurring a withdrawal charge. If you transfer it to a different type of ISA, you will have to pay a withdrawal charge.

Saving for your first home

Your lifetime ISA savings and the bonus can be used towards buying your first home, worth up to £450,000, without incurring a withdrawal charge. You must be buying your home with a mortgage.

You must use a conveyancer or solicitor to act for you in the purchase, and the funds must be paid direct to them by your lifetime ISA provider.

If you are buying with another first time buyer, and you each have a lifetime ISA, you can both use your government bonus. You can also buy a house with someone who isn’t a first time buyer but they will not be able to use their lifetime ISA without incurring a withdrawal charge.

Your lifetime ISA must have been opened for at least 12 months before you can withdraw funds from it to buy your first home.

If you have a Help to Buy ISA, you can transfer those savings into your lifetime ISA or you can continue to save into both – but you will only be able to use the government bonus from one to buy your first home.

While we are members of the EU, it continues to be the case that there are no limits to the alcohol and cigarettes you can bring back to the UK. However, if customs officials believe you are bringing back goods to sell them in the UK they will take an interest. According to HMRC you will be more likely to be questioned if you bring back more than:

If you are travelling back from outside the EU, the allowances are:

Alcohol allowance:

How much you can bring depends on the type of drink. You can bring in:

• beer – 16 litres
• wine (not sparkling) – 4 litres

You can also bring in either:

• spirits and other liquors over 22% alcohol – 1 litre
• fortified wine (e.g. port, sherry), sparkling wine and alcoholic drinks up to 22% alcohol – 2 litres

You can split this last allowance, e.g. you could bring 1 litre of fortified wine and half a litre of spirits (both half of your allowance).

You may have to pay Excise Duty on alcohol you declare.

Tobacco allowance

You can bring in one from the following:

• 200 cigarettes
• 100 cigarillos
• 50 cigars
• 250g tobacco

You can split this allowance – so you could bring in 100 cigarettes and 25 cigars (both half of your allowance).

You may have to pay Excise Duty on tobacco you declare.

Alcohol and tobacco allowances if you’re under 17

There are no duty-free allowances for tobacco or alcohol if you’re under 17. You can bring alcohol and tobacco to the UK for your own use but you’ll have to pay duty or tax on them when you get to customs.

Allowance for other goods

You can bring in other goods worth up to £390 (or up to £270 if you arrive by private plane or boat).

If a single item’s worth more than your allowance you pay any duty or tax on its full value, not just the value above the allowance.

Although HMRC refer to taxpayers as customers, and thereby suggest a degree of customer service, in the real world this rarely extends to offering “customers” pro-active tax advice.

Historically, tax collectors are trained to maximise the assessment and collection of tax. Consequently, tax payers should be wary, they should check the tax statements that are delivered in brown envelopes and make sure that they have taken advantage of reliefs and allowances available to them.

Take for instance the personal tax allowance. Not much to go wrong here you might think. For 2016-17 your personal tax allowance amounts to £11,000 and this amount will be deducted from your taxable income before any calculation of taxes due is made; or will it?

Three planning issues for 2016-17 come to mind:

1. Will your total income be under £11,000? Consider Peter and Jane. They are married, Peter’s income is below £11,000 and Jane is a basic rate, not a higher rate taxpayer. Peter could transfer up to £1,100 of any unused personal allowance to Jane. This would save Jane £220. HMRC are aware of Peter and Jane’s earnings and yet they require the couple to make an election and claim the relief. Which is fine if Peter and Jane are aware of the relief. HMRC are apparently surprised that a large number of couples who could claim the relief do not.
2. If you are in business, there is a very generous allowance you can claim if you buy qualifying commercial vehicles or equipment. Since 1 January 2016, you can deduct the full costs up to £200,000. If you are self-employed there is a danger that claims such as this Annual Investment Allowance (AIA) could reduce your taxable income below the £11,000 personal allowance threshold. If this occurs, any unused personal allowance is lost – it cannot be carried forwards and claimed in the next tax year. What you could do is restrict your claim for the AIA such that your taxable income equals £11,000 and your personal allowance would be fully utilised. Any balance of capital expenditure could be carried forward and used in future years.
3. If your income exceeds £100,000 you will lose your entitlement to claim the personal allowance at the rate of £1 lost for every £2 your income exceeds £100,000. This means that when your income for 2016-17 exceeds £122,000 you can no longer claim the £11,000 deduction. Readers who have an interest in numbers will be interested to know that income is taxed at a marginal rate of 60% in this £100,000 to £122,000 band. Tax payers heading for this outcome can take steps to reduce their earnings below the £100,000 trigger point, but HMRC will not advise you on the steps you could take.

The UK has one of the most complex tax codes and many tax payers run the risk of paying too much tax just because they are not aware of the allowances and strategies they could employ to minimise their expose to taxation. We are not suggesting any form of avoidance activity, we are only suggesting that you claim your full entitlement to allowances and reliefs that are available to you. Of course, we would be delighted to be part of the process – call any time for a consultation.