Government makes finance bill U-turn on dividend allowance, corporate loss relief
The government has dropped several measures proposed by Chancellor Philip Hammond in his spring budget, including the tax-free dividend allowance and the Making Tax Digital plan.
Numerous amendments were made to the Finance Bill before Parliament closes on Thursday ahead of the snap general election, including a dropping of the reduction of the tax free dividend allowance from £5,000 to £2,000; a dropping of the reduction in the money purchase annual allowance from £10,000 to £4,000;
Analysis of the amendments has found that the government has made a U-turn on more than two thirds of the clauses proposed by Hammond, keeping just 25 of the 84 clauses originally proposed.
Other items left out of the bill include a £500 pension advice allowance increase dropped, plus the Making Tax Digital plan and all corporation tax measures have been left out of the Bill including carried forward losses and corporate loss relief.
"Politically, it makes sense to ditch unpopular policies during an election campaign"
Hammond's measures to charge tax on overseas pensions and on offshore pension transfers have been kept in the bill, as well as the levy on the sugar drinks industry.
Treasury Committee chairman Andrew Tyrie, in one of his final acts before announcing he was not going to stand for re-election, had urged Hammond to truncate the bill as there was not enough time to properly consider all of the proposals in the draft Finance Bill.
As well as these changes to the Finance Bill, the government was also reported to be temporarily shelving its plan to ban cold-calling, all part of an effort to priorise key policy measures and jettison those that could slow the process.
Hammond was also forced into a humiliating U-turn last month when he scrapped the controversial plan to increase national insurance contributions for the self-employed and he and Prime Minister Theresa May had to acknowledge that they had broken the Conservative Party's 2015 manifesto pledge that it would not raise income tax, national insurance or VAT.
While investors might celebrate the suspension of the cuts to the retrospective Money Purchase Annual Allowance and the dividend allowance, Tom McPhail, head of policy at Hargreaves Lansdown, said investors would be wise not to assume this is a permanent reprieve.
“Politically, it makes sense to ditch unpopular policies during an election campaign, in order to avoid upsetting voters."
In the event of a Conservative election victory, McPhail expected to see many changes reintroduced.
"We suggest investors should continue to assume that by the end of this tax year, they may have to work within the reduced MPAA and dividend tax allowance.”
The Chancellor had proposed cutting investors' annual tax-free dividend allowance cut to £2,000 from £5,000 from April 2018, in a move that was set to see the government receive almost £1bn in extra revenues by 2021/22.
“The Government’s decision to drop the increase to the £500 advice allowance financed by employers, as well as the inevitable suspension of the cold-calling ban are disappointing, particularly as these are not contentious measures,” said McPhail.