Fri 06 / 01 / 17
Chancellor gears Autumn Statement to act as a pre-Brexit tune-up
In a speech that prioritised addressing the long-term weaknesses of the UK economy to make it fit for Brexit, there were also numerous tweaks to the tax regime. Tom Conner from Drewberry provides a breakdown of the main changes for individuals and companies.
The first Autumn Statement since the June referendum which ultimately unseated Chancellor George Osborne, saw the latest incumbent, Philip Hammond announce that this would be the last of its kind. Following the 2017 Spring Budget, budgets will move to the autumn with a scaled down Spring Statement aimed at addressing economic forecasts but with any significant fiscal changes being saved for the main budget at the end of the year.
Mr Hammond’s speech was generally received as a common sense measure in the run up to next spring’s main budget. It emphasised increased infrastructure spending, a halt on further welfare cuts and, importantly, the admission that, as part of what he described as a “fiscal reset”, the dream of clearing the budget deficit by 2020 would be replaced by significant additional government borrowing.
Even so, the swan song Autumn Statement contained a range of detailed changes to the tax regime which will affect both individuals and companies alike.
The Autumn Statement: main headlines
Changes to personal taxation and allowances
- Income tax. Next year the Personal Allowance will rise to £11,500 and the higher-rate tax threshold will rise to £45,000 as part of a phased programme to raise the former to £12,500 and the latter to £50,000 by 2020. From then, the personal allowance will rise in line with CPI (and not the national minimum wage, as previously proposed).
- Capital gains tax. With no changes announced, the current rates of 10% for basic-rate taxpayers (18% for property gains) and 20% for higher-rate taxpayers (28% for property gains) will remain in place.
- Non-domiciled status. The previously announced changes to non-domiciled tax status come into effect in the 2017 tax year. These effectively prevent UK residents from being permanently classed as non-domiciled and curtail the avoidance of inheritance tax on residential property held in trusts or companies.
- ISA & child trust fund limits. As previously announced, the ISA limit rises to £20,000 next year but the Autumn Statement also increased the annual limits for junior ISAs and child trust funds to £4,128.
- Insurance premium tax. As from 1 June, the standard rate of insurance premium tax (IPT) will rise from 10% to 12% in the latest in a series of aggressive hikes. IPT applies to general insurance premiums, such as home, car insurance and private medical insurance (a higher rate of 20% applies to travel and appliance cover and some types of car insurance).
Increased enforcement
In a nod to the current rash of HMRC investigations into tax avoidance schemes that have ensnared scores of the nation’s best known footballers and entertainers (including Wayne Rooney in no less than three separate schemes) the Autumn Statement was, as expected, heavy on anti-avoidance and evasion provisions.
This time around they included:
- New time limits. A new legal requirement to correct past failures to pay UK tax on offshore interests within a defined time limit.
- Full client disclosure. Promises of a consultation on a new requirement for intermediaries who arrange complex offshore structures to notify HMRC of those structures and the clients who employ them.
Changes to pensions
•The new money purchase annual allowance (MPAA). Although seemingly straightforward, this latest pension tinkering has the potential to wrong foot many thousands of Britons over the age of 55. The MPAA is triggered whenever someone draws taxable pension benefits using the new ‘pension freedoms’ and reduces the amount that they can subsequently contribute to their pension.
It initially reduced the pension annual allowance from £40,000 pa to £10,000 pa, but this was reduced to just £4,000 pa in the Autumn Statement.
Although it was intended as an anti-avoidance measure aimed at stamping out ‘pension recycling’ it could potentially jeopardize the retirement planning of anyone who makes use of their pension freedoms in the wrong way. Although it was intended as an anti-avoidance measure aimed at stamping out ‘pension recycling’ it could potentially jeopardize the retirement planning of anyone who makes use of their pension freedoms in the wrong way.
•Changes to foreign pension taxation. The tax treatment of overseas pensions that are paid to UK residents will be more closely aligned with that of UK pensions with lump sum and income being treated in the same way.
Specialist pension schemes for people employed abroad will also be closed to new investments. Britons who emigrate and choose to transfer their UK pensions into overseas schemes, will also see the time their pension remains subject to UK pension taxation extended from five to 10 years.
Changes are also planned to the way in which foreign pensions qualify as recognised overseas schemes.
•‘Triple lock’ retained. Contrary to prior speculation, the Chancellor announced the retention of the ‘triple lock’ which guarantees state pension rises in line with the highest of average earnings, the Consumer Price Index (CPI) or 2.5% pa.
•Pensioner protection. Rumblings of yet another consultation – this one to combat the threat of pension ‘scammers’ and cold calling.
The main changes for companies
•National Insurance. The income level above which employees and employers become liable for National Insurance (NI) moves to £157 per week from 2017. This won’t increase the costs for employees but it will for employers.
It was previously announced, that Class 2 NI contribution will be abolished from April 2018 with the self-employed instead paying Classes 3 and 4.
Both moves should help simplify the current regime.
From April 2018, all termination payments over £30,000, which are subject to income tax, will also be subject to employer NI contributions.
•Salary sacrifice schemes. From April 2017, the tax and employer NI advantages will be removed from such schemes, except those relating to pensions, childcare, cycle to work schemes and ultra-low emission cars.
Any arrangements in place before April 2017 will be protected until April 2018 while arrangements for cars, accommodation and school fees will be protected until April 2021.
•Corporation tax. The government committed to reduce the rate of corporation tax to 17% by 2020.
From April 2017, it will also limit the tax deductions that large groups can claim for UK interest expenses.
•Rise in the national living wage. From April 2017, the national living wage will rise by 30p an hour to £7.50.
Other announcements
- Fuel duty. A continued freeze on fuel duty.
- NS&I Investment Bond. The launch of a new three-year investment bond in April 2017 with an indicative rate of 2.2% for investments of between £100 and £3,000.
- Letting agents’ fees. A proposed ban on letting agents charging fees to renters (as in Scotland).
Please note: The information contained in this article should be considered as general information only and not financial advice. If you require financial advice please contact us or your financial adviser.
Thank you to Tom Conner and Bronja Whitlock from Drewberry Insurance for providing this blog.
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