Well, sounds as though there are quite a few changes that will have an impact on my FI goals.
1) BTL – the taxation on this will be changing. I need to understand how this will affect the income generated. It may make this an unprofitable option, I need to understand the details and discuss this with someone more financially savvy. I may need to sell the property once the mortgage ‘redemption hook’ has expired so I can get my money back (minus costs) and invest that into something else. It mentions the mortgage interest relief being capped, this could make quite a difference to the overall return.
2) Share Dividends – I hold shares outside an ISA – basically because I have lots of shares from an old employer, gained through share save schemes. These earn quite a good income at the moment which is funding my current freedom, more than the £5,000 tax-free allowance proposed. Trying to sell them and move the money into tax free accounts will require me to look for a good account that allows me to hold both shares and funds in one place. My current active NISA account will only permit me to invest in funds, it does not let me buy individual shares and hold within the account. I could just sell the shares in chunks over the next few years to use the CGT & NISA annual limits and move this cash into income funds instead, better diversification.
Some things to ponder based on the announcements. I am sure there are more aspects to the budget which will impact me, including the changes to the tax thresholds which could work to my advantage. It sounds as though my Honey Pot will not earn the income returns that I require. Most of the FI calculators I have found all look at gross values and taxation is ignored. I try to factor in some of this by reducing the return rate inputs but this may not be good enough. Any good calculators out there I could use to crunch the numbers?
3) Insurance Premium Tax – well that’s a nice one. Everyone has to pay for insurance (house, car, travel, etc…). Just as premiums were starting to come down in some areas this tax hit will put them back up again. I will try and get as many of my insurance policies renewed before the increase date: Nov 2015.
4) Pension Tax relief – The government want you to pay into your pension but are capping the amount of tax relief so double taxation on pensions continues. They want to encourage people to save but are not giving the carrots that are needed to do so. It is unclear who is affected by this cap whether it is just high-earners or everyone.
Maybe going back to work will be necessary after all; to gain my full State Pension entitlement I will need to earn another 13 years of NI credits anyway – unless I can pay voluntary top-ups annually from the Honey Pot income stream.