Mena Ruparel provides commentary on the impact the spring budget 2017 will have on family lawyers.
For financial remedy solicitors, a change in the budget will mean a review of Forms E already prepared and those in preparation. Anyone heading towards a financial dispute resolution or final hearing may want to update their position in light of these changes.
The change in income tax bands will have a small impact on the employed client’s overall net income position. In practical terms, if your client’s gross earned income remains static, their net income will be slightly higher due to the change in tax bands. The tax-free personal allowance will be increased to £11,500 and the higher-rate tax band increased to £45,000 from April 2017. Both of these changes contribute to slightly higher net income.
If your clients are company directors and draw the majority of their income via dividends then they will have less net income per annum than they did with the same gross income. This is as a result of the recent reductions in tax benefits to dividend tax. As a result of the spring budget, dividends can be drawn tax-free for a sum of up to £2,000 which is reduced from the previous tax free allowance of £5,000.
This will probably have a greater negative impact on directors / shareholders drawing substantial dividends. Over the last two years this has been a target for the government and something that all family lawyers must be aware of when the client is estimating future net income for the next 12 months in Form E. Many higher-rate tax payers will be exposed to much higher tax liabilities than before and this will of course impact on net income going forward.
For example, in the tax year 14/15, a director drawing a salary of £8060 and dividends of £60,000 would pay just over £7,000 in dividend tax. After the changes to dividend tax in year 15/16 this tax increased to just over £10,000 and in the year 17/18 this will increase even more.
Class 2 National Insurance Contributions (NIC) have been abolished, this will further reduce net income for the self-employed. Class 4 NICs for the self-employed increase to 10 per cent from April 2018 and again to 11 per cent in April 2019.
It’s a good idea to ensure that your clients are aware of these changes before using historic figures to settle maintenance claims.
There are no changes to capital gains tax (CGT) so any tax calculations already obtained in financial remedy cases can be relied on.