A report commissioned by the government has called for a rethink to the use of the emergency tax code on pension withdrawals.

Currently pension freedom payments are taxed at an individual’s marginal rate and if an individual draws a large amount in a single month then they can be taxed at a higher, emergency rate of tax. Individuals who are charged this higher rate can then reclaim this tax from HMRC by filling out a form however this is not always claimed back. In a report by the Office of Tax Simplification (OTS), the body called on the government to review the way pension withdrawals are taxed, accusing the current system of creating a lot of confusion. This would seem to be borne out by the £300 million overtax on pension payments since pension freedoms were introduced.

Crackdown on costly credit – but is it enough?

Consumer groups have reacted with disappointment to a crackdown on high-cost credit by Britain’s financial watchdog, saying it fails to address “unfair” unarranged overdraft charges or extend to a cap on the doorstep lending market. Following a wide-ranging review into the sector, the Financial Conduct Authority (FCA) is proposing reforms to bank overdraft charges, rent-to-own operators and catalogue credit and store cards. The watchdog is also considering a number of measures to make it easier for customers to manage their accounts, including mobile alerts warning of potential overdraft charges and stopping the inclusion of overdrafts in the term “available funds”. However, Which? said it was wrong that the regulator was not taking action on unarranged overdraft fees given that that banks are estimated to have raked in £2.3 billion in revenue from overdraft charges in 2016 alone

Tax shake-up good news for savers?

ISA savers should be able to hold more than one of the same type of wrapper during a single tax year, the government’s tax adviser has said. The Office of Tax Simplification (OTS) has said ISA rules should be made simpler for investors to administer. It suggests changing the rule where only one type of ISA can be opened at a time and instead letting savers hold multiple products, such as more than one Innovative Finance ISA from different peer-to-peer lenders or a variety of cash ISAs, as long as they remain within the annual allowance.

More potential dividend tax woes for the wealthy

The complexity of dividend taxation could be swept away under a proposal to remove the current system of discounted rates and treat payments the same as income tax. Less positively, though, the proposal by the Office of Tax Simplification (OTS), would likely hit wealthier, older savers and business owners by removing some of the discounts currently applied to dividends versus earned income.  Dividends held outside tax wrappers are currently subject to a tax-free allowance of £2,000. Above that, within the basic tax rate band dividends are taxed at 7.5%, in the higher rate band at 32.5% and in the additional rate band at 38.1%. Those offer a substantial discount to income tax set at a basic rate of 20%, higher at 40% and additional at 45%. But the proposed changes would have the effect of increasing the amount of tax due from those who receive amounts of dividend income above the allowance. It would also impact on the taxation of profit extracted as a salary or as a dividend, from family-owned companies.

Brexit Uncertainty

Brexit uncertainty and the prospect of a (anti-business) Labour government has caused UK stocks to become some of the cheapest in the world – £1.8 billion was withdrawn from the Investment Association‘s UK All Companies sector in 2017 alone. While this negative sentiment represents a source of concern for some investors, it has also created opportunities and some real value for money versus some international peers. In considering UK shares it is worth bearing mind that: uncertainties are now largely discounted (having been priced in), policy uncertainty is reducing, consumer sentiment is bottoming out and, perhaps more importantly, that the UK equity market is global in nature – as is the source of its revenue and profit. The banking sector is regarded as a particular sector offering value, while more defensive sectors like utilities and telecoms are regarded with less optimism.

Financial Advice Including Pension Advice, Bristol

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