Transcript

SPEAKERS

Scott Gallacher, Martin Stanley

 

Martin Stanley:

Good evening, ladies and gentlemen, welcome to Rowley Turton’s latest webinar on issues and topics, which we hope will be of use to our clients and perhaps potential clients and everything to do with financial planning today is a rather special one, because today, of course, the Chancellor of the Exchequer, Rachel Reeves, has sat down only a few hours ago having given her second budget of the Labour government.

Now I should say that Scott and I are both Chartered Financial Planners here at Rowley. Turton. We have both had careers over several decades in financial planning, and we’ve both seen budgets every year of those decades. In fact, there was a spell where there were two budgets a year, and every single one of those has been eagerly awaited and anticipated, and speculation is always rife, especially by us, as to what’s going to appear in the budget before it actually does. But this year has been even more so, much more so in fact, and you’ll all have seen in the papers and in the news broadcasts, and you would have talked amongst yourselves about the big bombshells that were going to drop on this particular budget.

 

And we weren’t immune from that. Even though we’re quite cynical about these things, we indeed thought there were going to be some quite big bombs dropped in this budget. So what was the conclusion then? Well, I think that’s best summed up in a couple of phrases. It was disappointing, but not dramatic. So just to expand. On that, in terms of not dramatic? Well, there are changes, and we’re going to go through the changes with you, but there were a lot of bullets that were dodged, a dog that didn’t bark. There were things that we feared might happen that really haven’t. So, for example, there have been no big changes to the way pensions work, and in particular, no changes to the tax-free cash allowance, which we were speaking about a lot. There’d be no big changes to inheritance tax, something that gets people very hot under the collar. It’s certainly a big topic for our clients. And also, no big changes. So, no sweeping changes to the way tax works, the way the income tax and the tax we pay on our earnings work. There are changes which we’re going to go through in a little minute, but no big changes throughout. So not dramatic in that sense. I also said it was disappointing.

 

Well, disappointing in the sense that the government will have told you today, and the newspapers will have told you it was their intention that this budget be all about growth, economic growth for the UK, something we sorely need. And when we say growth, what we mean it’s pretty simple. Is the wealth in the country growing and improving? So everything we do when we go to work, we create wealth for ourselves, our employers and build wealth and build the economy that all factors into what we term economic growth. Governments of all colours will tell you that growing the economy and introducing growth is a key objective, especially now when economic growth is a bit stagnant. It’s sometimes a bit controversial, because the way to generate growth is often by means that appear to be favouring the better off. So because you’re encouraging investment, you’re wanting people to put more money into the company, for people who are already, perhaps already wealthy, and there are ways to suppress growth as well, ways to discourage people from investing, encouraging people from taking risks in the economy. So we were looking out today for some encouragement of that growth and maybe lifting some of the discouragements. But unfortunately, when I say disappointing, what I mean is that that doesn’t really seem to have happened in the office today, we’ve looked at the budget and just realized that there isn’t really a lot that for our clients. And quite a few of our clients are entrepreneurs, business people, people who do grow the economy. There’s not a lot in it for them, and some discouragements, in actual fact, so I suppose another way of rounding out the budget today is saying it could have been worse. We were expecting a really big and dramatic change, and there haven’t been a lot of that. But of course, there are some things to talk about, and we’ll go over the first of those now, next slide please.

 

So just a bit of housekeeping in this webinar. The microphones are muted, so we can’t hear you or see you, of course, and there’s a question-and-answer feature on the screen. Please tap in any questions you have about anything we’re speaking about, and we’ll go through those at the end. Also, this webinar is recorded, so we’re going to send you an email of that in a day or two, so you can watch again at your leisure or pass it on to friends. And that’s it for the housekeeping. So moving on, the few caveats, nothing we say in this webinar is advice. So if you want us to help you actually take some action on your financial planning, please get in touch. So this is a picture of us, just in case you can’t see us at the bottom of the screen, smiling for you how the budget would affect you.

 

So let’s go on first fiscal drag. I’m going to take this first before I hand over to Scott, and fiscal drag is something I want to emphasise to you, because it’s something we’re going to be talking about a lot.

 

And just to explain what fiscal drag is, is if you think back, those of you that most of the people watching this will have been working for most of their lives, for some decades, at least, don’t have many young clients, and if you think back 2030, years and remember what you’re earning, then, well, obviously the tax bands and the allowances were in proportion. And it’s often overlooked that inflation creeps gradually up and up each year, and what we earn and the wealth that we have in our homes and our investments and our pensions creep up and up every year. And if the allowances and the benefits don’t increase in proportion, then gradually and gradually and gradually, the tax we pay in our investments and our homes and everything else increases and increases. So what’s happened in recent years is. This is called fiscal drag, is that our earnings have gone up. We hope inflation has certainly gone up, and most people’s wages have gone up in proportion, and house prices, of course, and things like that, and investments go up each year. But if the tax allowances don’t increase in proportion, then more and more and more of that wealth and that those earnings are exposed to the taxes. So effectively, the tax goes up and up and up. Now, on the screen at the moment, you’ll see some of the key tax bands that we all, or most of us, pay attention to, the personal allowance, that’s the first bit of your earnings before you start paying any tax. That’s been at £12,570 for over 10 years, and the basic rate tax bands, which is that the 20% band that we’re paying our earnings and the high rate threshold have likewise been static for years and years and years, even though our wages and our earnings have gone up by a few percent a year according to inflation, so more and more and more of our money have been taxed. And so therefore, even though the government quite truthfully say the rates have remained the same and they haven’t increased taxes on working people, which is their bold claim on this budget, in actual fact, the tax has gone up and up and up as a proportion of your earnings. So this fiscal drag is a really important point, and it applies not just to our income tax personal allowances, is what’s on screen at the moment, but also to all the other tax allowances for inheritance tax and capital gains tax and lots and lots of other things. So that’s a key measure the government have employed in this budget to increase tax. Some people call it sneaky or surreptitious. I don’t know if it is really but it’s certainly something that people notice less than suddenly saying, Well, we’re going to charge you an extra rate of tax. It’s just Quietly, quietly, the tax rate goes up and up, having explained that point you, I’m going to hand over to Scott now, and he’s going to talk to you a bit about some of the changes that actually have been announced in the budget, and I’ll come back and join you in a little while. Scott.

 

Scott Gallacher:

Cheers, thanks, Martin. And just carry on that fiscal drag point just for a moment. Then it’s a classic what if? So? If fiscal drag had not been employed by both this government and the previous government in its various incarnations, then this is what we think the personal allowances would have been in a couple of years time, £16,000 for the personal allowance, Higher rates tax wouldn’t have kicked in till £65,000 and the additional rate band would have been about £195,000 and this is based on a 3% inflation from when rates were last increased to when we think they might start to be increased. So this is just an indication. So, as Martin says, fiscal drag is where you’ve had a pay rise but they haven’t increased the bands or the allowances, and therefore that your tax effectively goes up. This is probably best illustrated for those on a state pension, where the state pension goes up for the tax bands or personal hour and hasn’t and now people are paying tax, albeit, they don’t necessarily feel much better off one second. Does it work from government’s perspective? It works very well, so effectively over that period, which used to go in Pentagon for almost 10 years, it’s calculated that the government will get in for the average working person or full time employee on about 38,000 pounds, when, until 2021, the government are probably earning an extra 1000 pound in tax per worker or employee or person on that point. So it’s quite effective when you multiply that up by number of people in the economy. And obviously it’s cumulative, because they’ve earned more money every year that they’ve done this. So looking at lower taxes National Insurance, good news is there’s no changes to any national insurance rates. Employers in will particular will remember that last year, last budget, there was an increase to the employer’s ni rate, and we’re still feeling the impact of that. As far as we can tell, the employment allowance, which is a kind of de minimis level at which you start to pay National Insurance, kind of credit you get before you have to stop paying National Insurance government. As far as we can tell, that’s unchanged from the current year’s figure of 10,500 and we would say that’s possibly yet more fiscal drag. Either your National Insurance bills will go up because wages go up and but the credit you get from the government, it hasn’t gone up. So again, that’s a small change to businesses, but it all adds up.

 

Capital gains tax, no changes. That’s good news. We were concerned about the CGT rates could increase. There’s a small point on business assets disposal, relief, entrepreneurs relief and. It was, and we’ll come on to that later. But again, the as far as we can see, the capital gains tax allowance remains at 3000 against that’s a small element of fiscal drag. If inflation was employed, applied to that, we’d expect it to be I 3100 around that kind of figure. So it’s capturing more and more gains every year just by not increasing an ounce. In fact, actually, with capital gains tax is arguably worse, because capital gains tax the capital gains tax allowance was cut over a number of years. So not only is it not increased by inflation, it’s actually been cut, which was generally by the previous government.

 

Inheritance tax. The good news is that there’s no changes to the rates. We will slightly would that would change to the rates and the allowances and the seven year clock might get extended some of the tax planning measures we use. We were chatting in the office the other day, and we’re worried that they could be under threat. So from one perspective, is that’s really good that they haven’t changed. There’s a couple of things to be aware of. Again, we’re back to fiscal drag point, the inheritance tax bans, which were already going to be frozen to April 2030 that was last year’s budget year, and governments like to get the bad news in early and spread this bad news out again trouble for doing it in future, and they’ve extended that freeze for an extra year to 2031 and this is something that we’re going through with clients a lot, that if you were to assume the inheritance Tax bans increased by inflation. A lot of people don’t have an inheritance tax problem because their estates are less than a million and they’re spending some so that kind of balances out the growth a little bit. But you said, expect the price of your house to go up over the value of your pension goes up if you’re not yet retired, etc. So on a real terms basis, your estate might stay comfortably below a million pounds for some clients, but in an absolute terms basis, we’re seeing that those numbers would be expected to increase, and that gives a inheritance tax problem, which is purely the result of fiscal drag for some clients. And that’s one of the things that for the last few months, we’ve started to illustrate with clients how that even if we don’t have an inheritance tax problem today, they might have one in the future, even though technically they are no better off and then no wealthy off, which, again, is a bit of an issue. The only other couple of points is this is from the last budget that unused pensions and possibly death benefits depends on how phrased. Most efforts seem to be excluded, but some of them may still get caught. Are going to be brought under the IHT regime from April 2027 we have done a couple of points on this. We’ve done a IHT and pensions calculator that we have on our website. But also we will send you the link to if you if you just drop his email, and that allows you to put your details in so all your assets, million in pensions. And it will clearly illustrate what the potential inheritance tax change is based on today’s values from April 27 and that’s quite frightening. I’m sitting with clients, and we’re seeing 40,000 60,000 200,000 pound inheritance tax bills purely because of this change to the rules. Finally, some good news is agricultural property relief and business property relief. They’re now going to be transferable between spouses. There was an issue previously on the previous budget, that if these allowances were effectively lost when one of you died and you left it to your husband or wife or civil partner. So there is some good news on that, and we’re quite happy chat to people about those kind of beliefs and that affects people. For directors, employers, small business owners, etc, got some good news. Corporation tax unchanged, or they did increase frequency. Not so good news on dividend tax, there’s an extra 2% albeit not on the additional rate with effect from April 2026, employers, National Insurance, that is unchanged, which is good news. Orbit decrease before and the point about the employment allowance, minimum wage for anyone employing, especially younger people, is increasing by between 4.1% which isn’t too bad if inflation 3.8 is kind of in the right ballpark. And for the 1820s I think it is increasing to or by 8.5% and that is on the top of an increase for that age demographic of about, I think it was 18% 18 something last year. So that’s quite an increase in the cost of employing young people. There’s some argument that goes completely against the Chancellor’s supposed growth agenda. If you make hiring young people very expensive or relatively expensive, then that’s not going to help businesses hire young people. So that’s an issue. Capital gains tax on sale of business under what is called business asset disposal relief, previously called entrepreneurs relief, that’s now being taxed at 18% up from 14% now, to be fair, that was in the previous budget. But it’s just a reminder this has happened. Is happening. And again, I mentioned before about business, IHT, relief, they’ve been transferable between spouses, which is good, again, entrepreneurs. Relief, just to touch on it again, gone from 14 to 18% so this is if you sell your business, and previously it was 10% back. In the day it was 10% on 10 million, we’ve now got a million pound band. And again, so that allowance, it previously was 10 million, admittedly some years ago, was then cut to a million, and the million pound band has been frozen. So again, if your business last year was worth a million pounds, you would have benefited from business asset storage relief on the whole million pounds that business, even with an inflation increase to 1,040,000 is going to be suddenly, it’s going to be going tax extra on that 40,000 so that’s that’s a factor. So savers, they’ve been quite affected by this in some ways, by a couple of ways, really, and there’s a lot of news about the cash ice allowance reducing from 20,000 to 12,000 that’s from April 27 again, the government, this government and previous governments have adopted a policy of, kind of delaying the bad news, so they announced something today, but it doesn’t actually come in for a little while that allows them mathematically to show the impact of that policy in terms of Office of Budget Responsibility projections. That works well for government borrowing figures, etc, but they don’t feel the immediate pain, because there’s a disconnect between them announcing something and it happening, and then when it does happen, they can legitimately said, Hang on a second. We told you about this two years ago, so therefore it softens the blow. It’s still it’s still an impact, but it’s quite a clever government strategy in terms of the change. It’s worth pointing out that doesn’t affect the over 60 fives, which for our clients, tend to be old, is probably a good thing. Couple of comments on that. It’s clearly a political decision. Older people tend to vote more than younger people. So if you were cynical, you would say that I was clearly political decision to exempt older people from this change. The age 65 seems somewhat of an outdated concept, given that state pension age now is 67 going up to 68 so would have seen more sensible to start into state pension as financial advisors the I think it’s fair to say that the financial world is incredibly complicated. Tax is incredibly complicated, and the government having lots of different ages for things does not make life easy. So our view is, if you were going to have a different age exemption and a question of the value of that, then I would have thought that age would have been better to try to state pension from a slightly selfish angle as somebody who’s luckily under 65 Our view is that that does discriminate against the kind of business owners element of our client bank, who might not want to invest money necessarily, but would still want to save it tax efficiently, they’re limited to 12,000 in a cash ISA, where somebody over 65 can put 20,000 a cash ISA. So it just seemed a bit bit of a weird choice. Worth pointing out that the overall 20,000 pound ISA allowance is unchanged. So what that means is, if you’re under 65 and T Well, today, you were paying in 20,000 pound into your ISA. In the future, as I say, from April 27 you’ll still be able to pay 12,000 into your cash ISA. But if you want to fully utilize the 20,000 allowance, that extra 8000 pounds would have to go into an investment ISA. For some people, that’s fine. For other people, that introduces obviously more risk, and that’s not something that’s not appropriate. If you’re unsure whether or not that’s appropriate for you, you should obviously speak to ourselves or somebody else and obtain appropriate advice. It is worth pointing out there’s no impact on existing ISAs. I think there was some concerns from people that this meant that their existing ISIS would be capped, ie, they could only have 12,000 pound in Isa. Now, if you’ve built up an ISA for many years, we’ve got clients with 50,000 100,000 200,000 pounds, etc, they’re not affected. It’s just what you can pay in moving forward. And there’s a small point on Lifetime investment ISIS, which are generally for younger people saving for a house and other factors that is to be scrapped and or replaced as a consultation period. So we don’t know what it’s going to replace with, which isn’t very helpful, but they claiming it’s going to be simpler. I think we’ll wait and see on that point. Finally, savings income tax rates have increased 2% so if you’re currently basic rate tax paying, paying 20% on your savings, that’s will be 22 higher rate tax payers. It’s going from 40 to 42 and additional tax rate payers, from 45 to 47%. That is just obviously unfortunate, but it’s also a reminder, from our perspective, is the value of ISAs. So you should be putting your savings make clear the ISAs still remain tax free. So it’s a savings outside an ISA, so in a normal bank or building society account, fixed rate, savings bonds, something like that. Just to be bear in mind pensions. Well again, pensions, mixed bag, a. Mostly unchanged, which is something, again, we’ve got this still element, this fiscal drag, the allowances, which, in simple terms, for a lot of our business owner clients, is 60,000 pound the, what’s called annual allowance, maximum paying to a pension. On one hand, that is very generous, and I think it’d be difficult to say that it wasn’t very generous. However, again, it’s still not increased. So there was a big increase a couple of years ago, so we’re very grateful for that. But from where we are today, it’s not changed. I do need to read the legislation carefully, because the 60,000 figure was possibly a temporary figure, and we haven’t seen anything to say it’s changed, but we do worry they might be reduced. So I would take advice before going ahead on that. But I think this year, you’ll be fine. The more worrying bit was that salary sacrifice has been capped at 2000 pound per annum. Again, this is a consultation it’s going to come in. They have been a bit hazy on how they will police this, but it’s salary sacrifices whereby you offer arrangement for your employees, or, if you’re an employee, your employer offers you an arrangement where, effectively, you technically take a lower salary, but there’s compensation for taking that lower salary. Your employer makes a pension contribution equivalent to that lower salary amount. So I was on 50,000 a year. I’m sitting on 48,000 and the government is paying so the employers paying 2000 pounds a year into my pension. The main reason for doing that is for a National Insurance saving for you as the employee E and almost certainly for your employer. So that’s why it’s been done. It does cost the government quite a bit money in terms of lost tax, so they decided they don’t like it, but it’s not coming in for at least a couple of years. So there’s some argument that if you have got this opportunity to use it. Maybe should use it now, but again, you would certainly need to take advice, either as an employee or an employer, because if you’re running one of these schemes, you’re going to get a big tax bill in a couple of years time when they effectively restrict it. Tax Free cash, there was a lot of concerns that tax free cash was going to be scrapped or changed or reduced in a budget. And now, to be fair, I think anyone spoke to us, we were sceptical that that would happen, but some people still want to take their tax free cash and there was perfectly legitimate reasons for doing that. The good news is it’s unchanged, albeit, I would again point back to that fiscal drag point that the 25% is unchanged, but there is still an overall limit to the amount of tax free cash you can take. As far as we can see, they haven’t changed that overall limit. So it doesn’t affect most of our clients, but some clients it will affect and again, we think this is just part of this fiscal fiscal drag agenda that the government has, which is, you freeze the allowance. In reality, pensions should go up in value each year, and last year was pretty good for market, so it generally did. And therefore, in real terms, that maximum tax recast figure is getting reduced. So it probably won’t affect anybody today, but if I come back to this in 30 years time, I think a lot of our clients at that point will be affected. So it’s a slow burn from the government, but it is a factor. And the big one, which was previously announced. But it’s worth reminding people of that death benefits effectively unused pension funds in this scenario, really, I submit it to IHT inheritance tax from April 27 I mentioned earlier, we have a calculator. We can put your details in. We’ll give you an instance of what we think the likely impact is. So anyone wants that, just email myself or Martin, and we’ll send that over to you. Properties again, again, mixed bag, really. No changes to main residence relief rules, no changes to capital gains tax. That’s good. No changes stamp duty, all things that we’ve messed around with previously. However, income tax on rent has increased by 2% on all rates. That’s effectively, effective from April 27 it’s interesting that landlords and savers, their rate increase comes in in April 27 but for business owners, the extra 2% national insurance that they’re going to get charged comes in from April 26 so it comes dividend tax, sorry, dividend tax, sorry, correction. And then again, this is going to be an issue, people. And then we’ve got this mentioned tap a mansion tax, which is between two and a half 1007 and a half 1000, depending on the value of your property. We understand that the government are going to re rate all properties in the top three council tax bands in 2028 probably do a bit before, I’d imagine. So this is going to come in. So we’ve got some clients. We’ve got some very nice houses almost certainly going to be caught by this. So that’s a factor. So from a general planning angle, you got to think that your living costs are going to go up quite a bit in a couple of years time. There’s some other points which are relatively minor, I think, in terms of what we do. So we have an issue with venture capital trusts, and that’s a specific tax advantage product that we ready to turn don’t typically use, fundamentally with generally viewed and was quite. High risk, and generally, most of our clients are slightly cautious, slash conservative, with a very small c, and so we’ve not really felt that’s appropriate, but the income tax relief that’s a tax saving you get by taking these things out, has been reduced to 20% Our view is that the product that we generally weren’t a massive fan of anyway, that reduction in the tax advantage will be bad news for that sector. Should we say? I think the attractiveness of venture capital trust for most people, will be much less now on electric vehicles, so that driving an electric vehicle as a company car, a driver which is very tax efficient, good news is changed. The benefit and kind rules, which is something, but the government is certainly guilty of what we would see as mixed messages. So on one hand, they have said that the they support electric vehicles, and there’s a range of grants being introduced or extended regarding charging etc, which is all positive. But then on the other hand, they’re introducing mileage charge. So what they’re going to do is some kind of system where the owner or the driver of the car will have to register the mileage. Partly, this could just be caught by mot or normal annual declaration, I suppose, or when you change your car and then you tax, I think they’re talking I think 3p A mile for normal, for full EVs, and I think it’s one and a half p for hybrid vehicles. And as a rate that they are very keen on increasing in the future, and they have said that that will be linked to inflation. So whereas they don’t tend to increase a lot of the bands, they certainly are increasing this pence per mile charge small point on employee ownership trusts. This is whereby you can sell your business to a trust that benefit the employees. There’s generally a big capital gains tax advantage. Well, certainly up to today, there was a practically you could sell it when paying no capital gains tax, and then your business would own by the employees, and you would get the money back from the business. It was a very tax efficient way of accessing the business. It was encouraged by the government in order to pass the business on tax efficiently, but to pass it on to the employees. I think their vision was we would create a series of John Lewis type partnerships, where the employees would own the business, which is obviously rewarded again. Yeah, they seem to be very conflicted. Rachel Reeves has this supposed growth agenda, but then into changing this thing which would pass, which would change the passing on on your business. So currently you get full capital gains tax relief, or you pay no capital gains tax when you do this, they’re now saying only going to get half the benefit, and there are some issues with employee ownership trust. So again, we think that kind of probably, probably kills that element for most people, sugar tax, ridiculous staffing for purposes of this exercise. But essentially, this is the idea of milkshake tax, expanding the sugar taxes on soft drinks and stuff, shouldn’t affect anybody here. I’d imagine Fuel Finder, in my view, one of the absolute ridiculous things of government, apparently, the source of the UK’s woes is that we don’t, can’t find a cheapest petrol station. And despite having the internet and Google and everything else. So apparently there is a Fuel Finder service that they are launching which allow us to go online and find the cheapest fuel, absolutely ridiculous. But apparently we’ll save us 40 pound a year. I’m not sure how that goes anyway to offsetting the 1000 pound a year that we’re losing from fiscal drag, or just on the income tax bands, etc. But you know, suppose every little helps, who’s affected? That’s it. I did skip a slide earlier about the tax I just covered, very briefly, but this is this 2% which I have covered separately, which is on savings, dividends and rent. But now pass you on to Martin about who’s affected most?

 

Martin Stanley:

 

Thanks Scott for taking us on a whistle stop tour through the announcements in today’s budget. So as I said at the beginning, not a lot of drama there really. Most of them are sort of tweaks and adjustments, rather than really big items of news. Having said that those of you who can see that you are in fact, affected by one or more of these new rules, might well be feeling pretty indignant, and might be thinking, well, you know, how does it affect me? Well, the answer to that, of course, is come and see us here at rover token, sit here in our boardroom, where we’re standing at the moment, and sit down have coffee and biscuits. We can discuss it. But if you are all those people, let’s just go over who is mostly affected. And you can see a list there, and you might see yourself on that. So business owners are probably the first thing. And just recapping on something Scott said, if you have employees where you’ve given them flexibility on whether they have salary or pension, and you’ve allowed them to swap swap between the two, or exchange one to the other, then you might be caught in this new salary sacrifice problem, which means that sacrificing too much of your salary in order to put it into your pension, or in order that your employer puts it into your pension, is now going to start being taxed in subjects national insurance that doesn’t just affect the employee, it will have come back to you. Also as a business owner, because you’ll suddenly find you have to pay employers national insurance, which, following the increase last year, is at 15% on the amount you pay in so that might be an extra bill for you as a business owner. And depending on how your scheme is arranged, you might find it difficult to unwind the pension contribution, and you might have to say to say to your employees, well, look, we can’t pay that amount for you anymore. There’s perhaps some employment law aspects there. So when Scott said a few minutes ago that you would want to look into that in advance of 2027, so a year and a bit, I think that’s really good advice. Look into that in advance. The other thing, of course, is remuneration. We’ve said, Scott has told you that dividend tax is going up by 2% from eight and a bit at the lower end to 10 and a bit and then up to over 35 the higher rate. Well, of course, to a lot of people, dividend just means sort of the income it’s generating for their investment. But for business owners, this is something it’s means that their daily bread, because a lot of business owners pay themselves partly by salary paye and partly through dividends. Now, it’s always been the case for a long, long time that small business owners especially tended to pay themselves a modest salary and then take most of their income by dividends and being the owner of the company and sometimes the only employee, that’s very easy to do, and it’s always been the most tax efficient way of doing it, and that’s fine, but that is becoming less and less the case. So you can see on screen there that at the basic rate of tax. So for PAYE, that’s 20% when you work out the overall burden of all the taxes that apply on this that’s dividend tax and corporation tax, National Insurance and income tax, then in the basic rate band. So that’s up to 50,000 pounds roughly. It is still an advantage for business owners to take their money via dividend, not through salary. So that is still the case. But look, you can see now that, in actual fact, for the first time, I think once you got above 50,000 pound a year, it’s actually slightly less tax effective to take dividend than salary. So I think an awful lot of people, for very many years, have automatically taken most of their earnings as dividend. Now might be the time to speak to your accountant say, Well, look, now is this still the best way to do it? You know, I’m a disadvantaging myself, perhaps by about 3% on the money in the high rate tax band. Perhaps we should change how we take money from the company. Now, there are advantages and disadvantages, not quite as simple as I’ve explained it there, and that’s especially the case when it’s a family company. Perhaps a husband and wife or spouses can share the dividends between them, so that’s a complicating factor, but it’s definitely something to think about and speak to your accountant or come to speak to us. So individuals and families, well, no very significant changes other than, of course, most individuals and families are savers to some extent, and we have heard that not only is a savings rate that most people that means bank income is going up by 2% so no longer the same as your 20% basic rate. Tax on your on your earnings, on a poie, your interest is going to be at a different rate, so a bit more complicated, but we can take comfort in the fact that it’s not as complicated as a Scottish system where they’re having I now have six different income tax balance, so you’ll pay a little bit more on your bank interest, as Scott told us a few minutes ago, and you’ll also be able to shelter less of that money in your cash ISO. So it’s not quite not very good news on that front, but really, it’s not very dramatic news for individuals and families in that sense. Certainly nothing to do with your salary or pay. Nothing will have to change. So when you see in the newspapers at the end of every budget, you know, how will this affect what you take home in your pay package? No changes, really. So on the next slide, we can see landlords. Well, landlords are a group of people who have been the subject of government tax changes quite a lot over recent years, and frankly, quite a lot of the landlords that we speak to, and there are a lot, a lot of people have a buy to let on a small basis, or even two, three or four, I think it’s fair to say, probably agree that most of the landlords we do speak to are pretty fed up because they feel there’s an increasing burden of not only tax, but also regulation, and there’s more in a pipeline. So this is will be a bit of pill for them to swallow. Their income tax on their earnings as being a landlord, it’s going to go up again by 2% and that’s from 2027 so a year and a bit time. So people will be pretty fair. Up about that, and they’ll feel it’s another sort of nail in the coffin of whether being a landlord and making money from Rent is a good idea

 

Scott Gallacher:

 

On that point, which is, we didn’t put it on the side, but it was a thought we have just before we started presentation. There is an issue with animals that own the properties directly, less so if you own through a limited company, whereby, a few years ago, the government effectively capped the mortgage interest relief. So rather than offsetting it fully against the rent, they applied a standard 20% deduction or saving, which for basic rate taxpayers meant no real change. Or you pay 20% tax on the rent and you got 20% interest saving on the mortgage interest. So, so no real changes, but it certainly high rate taxpayers, where suddenly they were paying 40% income tax on the rent with only a 20% income tax saving on any mortgage interest, on capital repayments. Our concern at this stage, and we haven’t got the affinity of answer is that, or concern, or expectation is that the government won’t change the 20% mortgage interest rate figure, and I think they’ll keep it at 20% that’s my gut feeling. I’m not seeing anything say they are changing it. And therefore, if they then put the rent up to 22% tax even for a basic rate tax payer, you’ve gone from a point where you at least neutral either you were getting a full tax relief at 20% for the mortgage interest to where now you’re effectively making a 2% loss on that. Are you paying 22% tax on the rent and only getting 20% relief on the mortgage? Now this is a similar situation to higher rate taxpayers have been in for a while, as I’ve said, because they were paying 40% and they get 20% tax relief, but it’s now going to, if what we believe is going to happen, does happen, is now going to filter down to even basic rate taxpayers. So this might be a retired person with a state pension and one buy to that property, you know, with with a buy to that mortgage on it, if you’re only outright in our factor, but if it’s mortgage, and if it’s if you are a taxpayer, then again, it’s even worse, in a sense, because you’re paying 42% tax with only 20% mortgage interest rate. They may change that, they may clarify, but my gut feeling as we stand here today is that it’s an extra 2% loss on money that you’re not even making in effect. So I just wanted to make that point, because that’s a valuable addition

 

Martin Stanley:

So, but just going on with our slide there. So just to return to what I said at the beginning of this evening, which is that it could have been worse if landlords are feeling pretty fed up, well, there’d be no changes to capital gains tax. So that’s that’s a key thing, and we did fear that they those rates might have been increased a lot, maybe even up to income tax rates. Also no changes to damp duty, despite what the newspapers promises were going to happen only a couple of days ago, no changes there. Inheritance tax, the next line down on your slide, not directly related to this, but those people who have both a home and a buy to let property might have been close to the inheritance tax limit anyway, but now that inheritance tax is going to be levied on pensions as well. An awful lot of people who have more than one property, their pension will be the straw that breaks the camel’s back, and that will put them into the inheritance tax paying bracket, I would have thought. And again, that’s from April 2027, so the last point on this slide is just saying time to exit question mark, and that’s a point which we’re asking our clients, and our clients are asking us. And the conclusion of a lot of quite disillusioned landlords is, well, maybe, maybe the time investing in a buy to let properties is has had its time already. It’s gone. So come and speak to us about that, and we can and we can talk to you about alternatives and and how to change things. So conclusions, then the conclusion is really just to recap on action to consider for business strategies. For business owners, think about your remuneration strategy, how you take your money from your business. This is something where you can really make a difference to what tax you pay. We all want to pay no more tax than we have to, and that’s an area where you can affect that income tax position. If you’re paying extra money on your savings and you’re paying extra money on your rental income and you’re paying extra money on your dividends, well it’s probably therefore time to think about how you can structure things so that you pay less tax than you are at the moment, there are various investment vehicles. ISIS is an obvious one, but also investment bonds and other vehicles that we can help you look at which can help you manage your investment and manage your tax position a bit better, and that’s applied to business owners and also individuals with investments. Lastly, just again, repeating myself here, but landlords, I suppose the question for you is, do the numbers still stack up? So on all of this, how can roadie turtle help? I think is that the next slide do? Next one, not last one.

 

Scott Gallacher:

Okay, fine, which is what

 

Martin Stanley:

We do at Rowley Turton, more than anything else. And first and foremost is helping you understand your financial planning picture. And we do that by planning by looking forward, helping you understand what the possible future looks like, what your options are and how how the future might pan out. We try and use our crystal ball in a more sophisticated way than that, but we project forward and discuss how your financial planning might go over the years to come. We calculate what you need to do and how you need to get there, and we work in conjunction with your other experts, accountants, lists, etc, to help you navigate this world of which, this has been a quick whistle stop tour of the latest happenings in the budget. Just lastly, we do this at the end of every webinar. Those of you who’ve been to a few of these will know that we offer a book. We didn’t write this book, but it’s something which nicely describes the principle we take in financial planning in terms of looking forward, helping you live the best life you can with your money, which is, after all, only a tool for living and deciding and showing you how much money you need for the rest of your life and how to achieve that, if you’d like a copy of that book which is an easy reading that we like it, please let me know. Drop me an email at Martin at Rowley, certain.com and I will send you a copy. Okay.

 

Scott Gallacher:

Thanks. Martin. One last point, just questions, answers. One second. Here we go. Yeah, just one question, which is basically given the tax changes and the IHT changes on pensions, which we talked briefly about today, but spoke about more last year, Windows and do pensions still have a place for people? Are they kind of old hat? I’ve always felt pensions a great idea, the inheritance tax and ranches they were enjoying and are still enjoying for a year, and a bit fabulous. And that going is a little bit disappointing, to put it mildly, but it’s still our fabulous place. If we talk about the tax that small business owners in particular pay, and when you work out paying either corporation tax and then dividend tax, if you pay the money out to yourself as dividends, or if you talk about the national insurance that you pay and then the income tax that you pay, if you pay it through salary or bonus. As Martin mentioned earlier, we can get tax rates of 50% easily without really trying, for most business owners, or certainly around 50% now, if we need that money, that’s a necessary evil. We have to pay the tax because we got money to pay for mortgages, school fees, holidays, etc. But if we are doing better than that, and we’ve got money that we don’t technically need today and but we will need in retirement, and we want to be funding our retirement, which I think we all should be considering, then pensions are amazing vehicle, because effectively, in simple terms, what we can do is we take profits out of your business employees, similar with wages, and the maths are slightly different, but it’s the same principle. But for business owners in particular, you can take that money that is going to pay some form of tax, potentially over 50% before you get in hand. So so in some scenarios, you’re seeing 40 5p in the pound in your pocket, and 50 5p in the pound is going to Rachel Reeves in effect, for various combination of taxes that you will pay. Instead, you can put that into your pension. You can effectively keep every pound that you’re earning now, yes, you will pay some tax when you come to retire. That’s not ideal, maybe not to pay tax. But for many of our clients, the tax that they will pay in retirement is only around 15% so effectively, some clients can take a 55% tax saving today, only pay 15% in the future and get tax free growth in the meantime, effectively, we’re full 40% tax saving. So if you’re making a 50,000 a pound a year that technically you don’t need, and you only see about 25,000 when you strip all the tax out, we can put it in your pension. Effectively save 10s of 1000s of pounds, and over time, hundreds of 1000s. So pensions are far from dead, and more of us need to be remembering that pensions are very good. Thank you for that question. Okay. Oh, another question, how did the markets respond to the budget? Well, literally,

 

Martin Stanley:

yeah, there was some concern. The response to this sort of budget is normally not the not the stock market so much, but the bond market, and that’s to do with how much it costs government to borrow, and that’s to do with how much confidence people have in the government to balance the books. There was a little bit of worry earlier on, the graph went down quite sharply, but then it recovered again. And I think the conclusion at the moment is that the international markets and the bond markets are sort of they’re not too disappointed. They’re not elated. It’s sort of neutral. There are things to look for in a few years time, because projections of government, government books are a bit uncertain, but at the moment, there’d be no big reason. Actions either way. So I think we can bear in mind what might have happened. I think we should take that as good news.

 

Scott Gallacher:

Yeah, I think Martin’s point is good that there was the best you can say about this budget is that they could have raised the money they’ve raised in much worse ways, which is not much comfort, but it is some comfort, as Martin mentioned at the start. I do think it’s a very disappointing budget in terms of growth. If you look at the business leaders and the small business people, people who get out bed in the morning, go to work to kind of make money, they effectively are paying more and more taxes. And in simple terms, a lot of those you’re paying yourself through dividend. We’re now getting to the point where business owners are effectively paying higher tax rates than employees, and that is quite a change, because normally the tax system favored you to run a business, favored you to pay yourself with dividends. And partly this was because it was a reward for not only your hard work, but also the capital you employed, both financial, physical and mental. So there was some idea that if you’re running a business, yes, some of that money that you earn is down to just getting up and going to work, but some of it is down to the risk that you take. The view was that you should be rewarded by the tax system by effectively paying a lower rate to encourage you and to encourage others to start businesses, run businesses and grow businesses with the most recent tax changes, either 2% increase and on the back of previous tax rises, I think we’re getting to the point where, for a lot of people, it doesn’t necessarily make tax sense to run or to open or to launch or to expand a small business, necessarily, and all the reasons, obviously, self control and the overall profit level is can be quite attractive for some people, but the tax system is no longer rewarding those people. So if you were to ask me, Is it a budget for growth, for part of the supposed growth agenda, it definitely is not. It’s, yeah, there’s no real pro growth elements within this budget, things that you would have wanted to see if it was growth, was perhaps dividend cuts, at least increases to dividend allowance, probably corporation tax cuts. I know incentives for investing in business and effectively not even the venture capital trust income relief, changing is a disincentive. So from that perspective, it is not a budget for growth. It’s not catastrophic. I certainly, 24 hours ago, was running through all the ways that the government could kind of ruin my life and the life of my clients. The good news is, a lot of the inheritance tax planning opportunities that we have started to use in light of the pension it changes, they are still on the table, and that is a godsend. And some of the tax planning measures. We’ve got two cases we’re working on at the moment where we’re saving clients 10s and hundreds of 1000s, in some cases, on existing investment monies, and we avoid that those planning opportunities would have been changed. We were desperately getting paperwork in before the budget. And so I will at least sleep sounder tonight knowing those cases are fine and those clients can still save that money so they can keep so they can keep it and like Martin says, if you’ve got any concerns about your own personal financial situation, or even if you think you’re fine, you should probably still give us a call and we’ll run through and just worst case, I will confirm that you are in as good a shape as you thought you were. Thank you this evening. Oh, just last point I say we’ve got this IHT calculator. If you either email martin@rowleyturton.com or scott@rowleyturton.com we can send you a link to that. It is on the website, but it’s a bit awkward to find. It’s easy to find any phone. Bizarrely, also, if you want a copy of the enough book, again, an email to Martin or me, and we wouldn’t get one in the post. It’s a hard copy, so we can’t email that. So we just need your home address if we don’t have it on file or office address, and we will get one out and post this week. Cheers. Thank you and good evening. Thank you very much. Bye.