Tax raid postponed as ministers rush through finance bill

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The snap general election has forced ministers to ditch controversial plan to slash the tax-free dividend allowance to ensure safe passage of bill, according to the Guardian.

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.

The decision to hold a snap election on the 8th June means ministers are having to rush legislation before parliament closes for business, resulting in the ministers ditching most the finance bill in a bid to ensure it gets through.

Important 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. Though, 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 around 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 would affect dividend-paying shares and investment funds held outside ISAs or pensions and will 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 money purchase 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 is Making Tax Digital (MTD) initiative which was unveiled in November 2015, which was designed to make the tax system more like online banking.  It was viewed as 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 HMRC.