A planned tax raid affecting more than two million people is one of several measures that have been dropped by the government as the general election draws near, it emerged today.
The decision to hold a snap election on 8 June means ministers are having to rush through legislation before parliament closes for business, and as a result ministers have effectively ditched the majority of the finance bill in a bid to ensure it gets through.
Key measures dropped include a plan to slash the tax-free dividend allowance from £5,000 to £2,000 from April 2018, and a big cut in the amount that many over-55s can save into their pensions. However, these are likely to be reintroduced after the election in the event of a Conservative victory.
During the finance bill committee stage debate on 25 April the government deleted large chunks of the wording, reducing the bill from 762 pages to roughly 140, according to the Chartered Institute of Taxation (CIOT).
The tax-free dividend allowance is the threshold at which point people have to start paying tax on dividend income from shares, and the reduction to £2,000 was announced by Philip Hammond in his budget last month.
The government had estimated that this change, which would affect dividend-paying shares and investment funds held outside Isas or pensions, would raise £800m-£900m a year and affect more than 2.2 million people, who would typically each have to pay several hundred pounds more in tax a year. However, for some with large portfolios it could be £1,000 or more.
This measure could still in theory take effect in April 2018, assuming the Conservatives win the election, as the government would have plenty of time to reinstate it before that date.
Another controversial item dropped from the finance bill was the reduction in the so-called money purchase annual allowance from £10,000 to £4,000, which affects people aged over 55 who have already made use of the pension freedoms introduced in 2015 that abolished the requirement to convert a pension pot into an annuity.
In theory, this change took effect on 6 April 2017 and was designed to restrict the extent to which individuals could gain a second helping of tax relief by withdrawing savings and reinvesting them into their pension. Ministers had said the cut to £4,000 “will limit the extent to which pension savings can be recycled to take advantage of tax relief, which is not within the spirit of the pension tax system”.
Also being ditched for the time being is the “Making Tax Digital” initiative originally unveiled by then chancellor George Osborne in November 2015, which was designed to make the tax system more like online banking. This has been controversial because it meant that from 2019, more than three million small businesses and landlords would be required to keep digital records and send quarterly updates to HM Revenue & Customs.
Tom McPhail, head of policy at investment firm Hargreaves Lansdown, said the suspension of the cuts to the dividend allowance and the money purchase annual allowance were “good news”, but added: “Investors would be wise not to assume this is a permanent reprieve … We do currently expect to see these changes reintroduced the other side of the election in the event of a Tory victory.”
Bill Dodwell, president of the CIOT, said: “If the original bill was the weight of a family sized turkey, the act which gains royal assent later this week will be more of a ‘turkey crown for one’ portion. However, going through 140 pages of legislation in barely two hours is still less than ideal. Hopefully this will be the last time there is a need for such a compacted process.”
Meanwhile, the AA said it was disappointed that the prisons and courts bill, which included reforms relating to how whiplash injures were compensated, had been dropped because of the forthcoming election.
Tax raid postponed as ministers rush through finance bill – The Guardian}