Phillip Hammond’s first (and last!) Autumn Statement today was forecast to be one of little change and for the average man on the street this was the case. But, from a financial planning perspective there were a couple of unexpected tweaks.
You may be wondering why I have referred to this as his first and last Autumn Statement. Well, it is being ‘abolished’ from next year. In fact, it is to be replaced by an Autumn Budget and the Spring Budget (After the next one, which will be the last), will become the Spring Statement. He has promised that the Spring Statement will be more of a review, with no actual changes. But he does reserve the right to make changes in certain circumstances. Confused? Apparently, it’s all about providing certainty and simplicity.
Well, aside from that, hopefully the following summary should help to give you an insight into the important points which may well affect our clients:
There was much focus on how the government has been busy helping JAM families (Newly coined term – Just About Managing).
This included the increase in the personal allowance which Hammond confirmed would be increasing to £12,500 by the end of this parliament. The higher rate tax threshold will also be rising to £50,000 by 2020. Both will increase with CPI from that point.
Any ‘hobbyists’ out there who derive a small income from trading (Below £1,000) will not need to pay tax on that income or declare it.
Capital Gains Tax
No change here. So, we expect Capital Gains Tax rates to remain at 10% (Basic rate) and 20% (Higher/Additional rate).
Aside from confirmation that Class 2 NICs will be abolished from 2018, no further information was given on the other intended reforms. Employee and employer National Insurance thresholds to be equalised at £157 per week from April 2017.
Whilst tax evasion is illegal, tax avoidance is not. This does not mean that the government is happy with all forms of avoidance and they Hammond today announced that they would be looking to close some loopholes which they feel have been abused.
Hints have previously been dropped about Salary Sacrifice arrangements which allow employers and employees in some cases to make tax and national insurance savings artificially. The government has now stated that tax benefits will be removed from April 2017, except in the case of schemes related to ultra-low emission cars, pensions, childcare and cycle to work.
In a drive to make the taxation of different ways of working fairer, the tax benefits of ‘Employee Shareholder Status’ will be abolished for new arrangements entered into on or after 1st December 2016. The government’s view was that this was simply being used for tax planning rather than supporting a flexible workforce.
Having just increased Insurance Premium Tax (IPT) from 6% to 10% on 1st October 2016, the tax will again rise to 12% from June.
Whilst Life Insurance is exempt from IPT, other cover such as Critical Illness Cover and Permanent Health Insurance may go up in price as a result. Therefore, it would make sense to get cover in place sooner rather than later to avoid any possible increase.
ISAs & Savings
The ISA allowance will rise to £20,000 from April 2017 as previously announced.
Similarly, the chancellor referred to the new Lifetime ISA for those under 40 when explaining how he was helping the housing market. So, we should also expect this to be introduced next year as planned.
The introduction of a new National Savings & Investments Bond with a 3-year term will be introduced in the Spring Budget. Although subject to change, an interest rate of 2.2% gross on a maximum of £3,000 was mentioned.
We almost got away without a change to pension legislation, but the chancellor couldn’t help himself. The ‘Money Purchase Annual Allowance’ or MPAA will be reduced to £4,000 from the current £10,000. If you have already accessed your pension benefits, this may restrict further the amount that you can subsequently pay in, whilst still attracting tax relief.
He also briefly mentioned the fact that the ‘triple-lock’ guarantee for state pensions would continue. However, the longevity of this valuable feature was placed in doubt, as the impact of life expectancy on policy for the next parliament will be examined at the next spending review.
If you have any queries about how these announcements will affect you, or would like more information, please contact your usual financial adviser here at Wise.
Please note – this blog contains the personal opinions of Joe Cooper as at November 24th 2016, and is not intended as financial or investment advice.