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Doctors - how Budget announcements are likely to affect your finances

Doctors - how Budget announcements are likely to affect your finances

On Budget day we all like to check the headlines to see how our personal finances are likely to be affected. But as the weeks and months pass by, it's easy to lose track of when the changes will be introduced, or whether there have been any subsequent announcements.

And remember that not all of the Budget statements make the headlines, so it's important to stay on top of developments to help you plan ahead effectively.

We've outlined some of the key announcements from the 2015 and 2016 Budgets and the 2015 Autumn Statement that are likely to affect doctors in the near future.

Savings

Personal Savings Allowance: The Personal Savings Allowance (PSA) has been introduced, meaning that there is no tax to pay the first £1,000 of savings interest earned by basic tax rate payers, or the first £500 earned by higher tax rate payers.

If you do qualify for the allowance make sure you're aware of the types of savings income that can use up your PSA.

If you do pay tax on savings interest, make sure you understand how this will be collected for tax purposes.  For example, if you usually fill in a self assessment tax return you should continue to do this. 

Additional rate taxpayers don't qualify for a PSA, so as a doctor you're more likely to miss out on this allowance now or in the future. It's important to minimise the amount of tax you pay on your savings interest, for example, by ensuring you use your full ISA allowance each tax year.

Dividend Tax Allowance: From April 2016 the Dividend Tax Credit will be replaced by a new tax-free Dividend Allowance of £5,000 which means that you won't have to pay tax on the first £5,000 of your dividend income, no matter what non-dividend income you have.

The allowance is available to anyone who has dividend income, and the headline rates of dividend tax are also changing. You'll pay tax on any dividends you receive over £5,000 at the following rates:

  • 7.5% on dividend income within the basic rate band
  • 32.5% on dividend income within the higher rate band
  • 38.1% on dividend income within the additional rate band


Good news for the 44% of GPs and doctors who told us in our February 2016 survey that they were using ISAs to help save towards retirement.

On average, the GPs and doctors we surveyed are saving £1014.86 a month towards retirement, and 22% said they planned to increase this amount as they get older*

. In addition, from April 2017 a new Lifetime ISA will become available for people aged between 18 and 40. They will be able to invest up to £4,000 each year in the Lifetime ISA, and receive a government bonus of 25% on any savings made before age 50. This is £1 for every £4 saved.

The money saved can be used:

  • as a deposit to purchase a first home, valued at £450,000 or less, or
  • to save for retirement

Money taken out before age 60 will incur a 5% charge and will lose the government bonus. If you're among the 85% of GPs and doctors considering carrying out more research on retirement over the next 12 months*, and qualify for a Lifetime ISA, don't forget to include it in your considerations.

Pensions

91% of GPs and doctors we surveyed in February 2016 could not correctly identify the Lifetime Allowance (LTA)*. This is the amount you can build up in your pension plan over your lifetime without having to pay a tax charge and was reduced from £1.25 million to £1 million on 6 April 2016.

If your pension savings are worth more than £1 million, or you expect them to be worth more than £1 million when you take the benefits, then you may be able to apply for LTA protection.

LTA protection is designed to protect the benefits you have already built up from any increase tax charge resulting from the LTA reduction Applications for LTA protection can be made via an online system that will be made available by the government in July 2016.

You may want to seek advice on whether LTA protection is suitable for you.

From April 2018 the LTA will be indexed annually by the increase in the Consumer Price Index (CPI).

To ensure public sector pensions remain sustainable, employers' contributions will increase from the 2019/20 tax year. This means that the NHS will have to find an estimated £650m per year.

It's important to make sure your own financial goals stay on track by understanding what changes to the NHS pension scheme mean for you based on your individual circumstances, such as your income, length of service, and when you joined the scheme.

If you have already taken retirement and are locked into an annuity contract, you may have the chance to 'sell' the income you receive from April 2017, under new proposals put forward by the government. In return, you'll get a cash lump sum or will be able to place the funds received from the sale into 'flexi-access drawdown', allowing you to access your pension savings with more flexibility.

It is advisable to seek specialist advice if you are considering selling an existing annuity as there are lots of factors that should be taken into consideration.

Capital Gains Tax

In April this year, Capital Gains Tax (CGT) reduced from 28% to 20% for higher rate tax payers, and from 18% to 10% for basic rate taxpayers.

You may need to pay CGT on a range of assets when you come to sell them (or otherwise dispose of) in the future, for example:

  • property that is not used as your main residence (through inheritance or a buy-to-let investment)
  • shares (outside of a tax-efficient ISA)
  • personal items that increase in value, and are worth £6,000 or more (such as collections of paintings, jewellery, or antiques)

It's important to be aware that gains made on second homes and buy-to-let properties will not benefit from the new lower rates - which is equivalent to an 8% surcharge.

The reduction in CGT is obviously good news, but did you know there are other potential ways that you can manage the amount of CGT you may need to pay, it's important to make yourself aware of these - seeking specialist advice if necessary.

If you'd like to discuss any aspect of your personal or professional finances with your local Financial Consultant, call us on 0800 107 5599 and quote reference 80677 or email: financialreview@wesleyan.co.uk.

*Research based on a survey of 613 professionals (100 dentists, 203 doctors, 100 lawyers and 210 teachers) by Censuswide on behalf of Wesleyan, February 2016.

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