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Major dividend tax and pension cuts suspended… for now

Find out what changes have been delayed - and what it means for you

tax changes suspended

The government has suspended major changes to dividend tax and pensions ahead of the snap general election.

The changes were supposed to be implemented in the 2017 Finance Bill, but have been shelved so the new legislation can be pushed through before parliament dissolves.

Whether the changes are re-introduced after the election depends on who wins the election, and what the main parties commit to in their manifestos, which are likely to be published in early-May.

The news comes as it was revealed retirees withdrew a record £6.5bn from their pensions in the past year – 50% more than in 2015.

Which tax changes have been dropped?

Dividend taxes

The government had previously announced the tax-free dividend allowance would fall from £5,000 to £2,000 in April 2018.

This would mean investors could receive less income from shares held outside a pension or Isa before they would have to start paying tax.

Pensions top ups

The amount that people can add to their pension after they had started taking an income from it was due to fall from £10,000 to £4,000.

This would have meant older workers who had either started taking a pension, or withdrawn money to cover an unexpected cost would be able to claim far less tax relief on pension savings.

The government previously said these changes, due to take effect in April 2017, were designed to restrict people from from claiming double tax relief on their pensions, by withdrawing a tax-free lump sum and then putting the money in again.

Retirement advice allowance

The government also had plans to let people make up to three tax-free withdrawals of £500 from their pension to help them pay for financial advice and plan for retirement.

This was previously scheduled to kick-in in April 2017.

Digital taxes for small businesses

Former Chancellor George Osborne had announced plans to make small businesses keep digital tax records, which would be filed quarterly.

What else is changing?

As announced last week, a controversial overhaul of probate fees has been suspended.

This would have seen executors’ fees change from a flat £215 to a sliding scale that depended on the value of the estate.

Record numbers access their pension

The suspension of yet another pensions overhaul comes as a record number of people access their retirement savings under the pension freedoms.

Figures published today show around 1.4m cash withdrawals have been made from pensions since new rules allowing flexible withdrawals were introduced in April 2015. On a quarterly basis, a record 176,000 people took money from their pension between January and March 2017.

The second year of pension freedoms saw some £6.5bn being withdrawn, almost 50% more than the £4.4bn that was cashed out in the first year.

The number of people taking advantage of the new rules also rose from 232,000 to 393,000.

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