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No cold calling ban but Finance Bill rolls out key reforms

The latest UK Finance Bill has not included a ban on pensions cold calling but has reduced the non-domicile threshold and implemented cuts to the money purchase annual and tax-free dividend allowances.

EU regulation overload hindering industry

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Published Friday, the second Finance Bill of 2017 runs 674 pages, considerably shorter than the original 762-page tome published in March.

The bill was introduced to the House of Commons and given its first reading on 6 September. It will get a second reading on 12 September.

Cold calling

A ban on cold calling was first announced in the Autumn Statement 2016 but was put on hold when the Conservative Government called a snap election in May.

In August, the government ramped up its rhetoric over pension scams by announcing a raft of measures, including a ban on cold calling.

While there was some speculation that the measures to tackle pension scams could be introduced in the Finance Bill this was “fairly optimistic given the timescales involved”, says Tom Selby, senior analyst at AJ Bell.

Non-doms

One particular thorn in the side of advisers has been a reduction in the non-dom threshold that was due to come into effect on 6 April 2017.

The change was put on hold when the snap election was called, throwing advisers and non-doms into limbo as to their status and putting at risk months, and even years, of planning.

The Finance Bill 2.0 has reduced the threshold to 15 years out of the past 20, down from 17.

Rupert Clary, partner at Maitland, says: “Whilst changes of this sort and this magnitude were bound to cause uncertainty amongst non-doms, what is clear is that the UK continues to offer a very attractive tax regime for wealthy non-British nationals coming to the UK temporarily, even where they stay for up to 15 years.

“After initial worries, the industry seems to largely view the new regime as fair and well balanced while clients are ready to adapt to the changes.”

Dividends

From April 2018, the tax-free dividend allowance is to be cut to £2,000 ($2,614, €2,183) from £5,000, as outlined in the original bill.

Selby said: “Clearly a 60% reduction in the dividend allowance will cause many investors to rethink the make-up of their portfolios from next year.

“The tax penalties on unwrapped dividend payments above £2,000 will be severe – 7.5% for basic-rate taxpayers, 32.5% for higher-rate taxpayers and 38.1% for additional-rate taxpayers.

“Any investors potentially affected by this should consider shifting their investments into tax wrappers like pensions or Isas, where investment growth and dividend payments are free of tax.”

Money Purchase Annual Allowance

Another allowance cut has been the MPAA, which will drop to £4,000 from £10,000.

Carolyn Jones, head of pensions proposition at Fidelity International, says the change has been made because “the government had genuine concerns about recycling”.

Analysis, however, has revealed “little evidence of behaviour driven by any dishonesty or urge to play the system”, she says.

“It appears that this change has been introduced to limit behaviours that do not  exist and is, therefore, non-sensical.

She adds: “Consumers’ lack of trust in pensions is largely driven by constant changes to the rules and this constant chipping away around the edges only serves to undermine people’s confidence in long term pensions saving due to the constant moving of goal posts.”

Advice allowance

Amid the cuts, the government has introduced a £1,500 pension advice allowance that gives people the opportunity to withdraw £500 up to three times from their pension pots before they reach the age of 55 to pay for retirement advice.

The allowance was one of the Financial Advice Market Review (FAMR) recommendations.

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