Columnist

What a Tory means for your money

Many voters will be pleased that the triple lock tax pledge promised by the Conservatives is set to come into effect now that the Tories have won the election.

The Prime Minister David Cameron pledged he would not raise the rates of income tax, VAT or national insurance until May 2020.

Many will breathe a sigh of relief from the election result - especially for the tax implications. No return to the 50% tax rate for those with an annual income of more than £150,000; no dreaded mansion tax; and anyone who runs a company will be pleased that the 20% corporation tax rate will continue.

Higher rate tax payers will be pleased to see more money in their pay packet, with plans to raise the 40 per cent threshold from its current level of £42,386 a year to £50,000. However, it is not just those in the higher tax brackets that are set to benefit. The yearly tax-free personal allowance is set to rise from £10,600 to £12,500 by the 2020/21 tax year under the new government.

Many smaller savers will be pleased to have kept the prospect of the new personal savings allowance, set to come into effect in April 2016, where higher-rate taxpayers will be able to earn up to £500 from bank accounts tax-free while basic-rate taxpayers will no longer pay tax on the first £1,000.

The 0% starting rate on savings income introduced in April will also help investors. Quite a lot of tax planning using offshore bonds is based on the 0% savings rate, and it would have been disappointing to see it go in favour of Labour’s pledge to introduce a 10% starting rate for income generally.

Investors will also be relieved that the capital gains tax exemption will not be brought down to two or three thousand pounds a year, planned by the Liberal Democrats. A Conservative government does call into question the UK’s membership in the EU and the prospect of a referendum on this might cause some volatility in the stock market and have a depressing impact on the pound.

On inheritance tax, those worried about the impact of the tax upon their estates will be pleased. The Conservatives announced before the election, they will introduce a new £175,000 per person transferable allowance for married couples and civil partners when their main residence is passed down to children on death. When this is coupled with the £325,000 nil-rate allowance each person has, it means property worth up to £1 million will be able to be passed down to children free of inheritance tax.

Married couples are likely to benefit under the tax allowance introduced last month by the Conservatives, but was planned to be scrapped by Labour. Married couples will keep the right to transfer £1,060 of their tax-free income to their husband or wife.

Wealthy pension savers are to be stung with restrictions on tax relief on pension contributions for those earning more than £150,000 by cuts to the annual pension contribution allowance, but this was an aim of both the Conservatives and Labour. The new government plan to do this by tapering the annual pension contribution allowance from the present £40,000 to £10,000 once income reaches £210,000. This equates to 50p of allowance lost for every additional £1 of income in a range between £150,000 and £210,000.

However, the younger generation of pension savers are not escaping scot-free. The Lifetime Allowance is being cut to £1 million, which means that there are potentially hefty penalties where a pension pot exceeds that amount.

Some of the changes to be made by the Conservatives are yet to come, while others have already been made, but one thing for certain is that it is impossible to predict the future. There is another budget on July 8th and this is bound to see further amendments to policy being introduced.

However, judgements can only be made on information that is available now. When making financial plans, less palatable outcomes, such as long-term care, should be considered and over-reliance on a particular rule or investment avoided.

Sound financial planning involves a holistic approach, according to Lowes Financial Management, which takes into account a person’s goals and aspirations and their unique personal circumstances. It also involves looking at every aspect of their financial portfolio and considering the best options for the individual’s needs.

This was posted in Bdaily's Members' News section by Lowes Financial Management .