Autumn statement 2016
In this Autumn Statement, the Chancellor announced that the government will move to a single major fiscal event each year.
Following the spring 2017 Budget and Finance Bill, Budgets will be delivered in the autumn, with the first one taking place in autumn 2017. Instead the Office for Budget Responsibility will produce a spring forecast from spring 2018 and the government will make a Spring Statement responding to that forecast. The Statement will review wider economic and fiscal challenges and launch consultations. The government will retain the option to make changes to fiscal policy at the Spring Statement if the economic circumstances require it. We therefore can look forward to a busy 2017 with two Budgets!
We are pleased to comment on some of the key points made in the Autumn Statement.
Reducing the money purchase annual allowance (MPAA)
When you draw benefits from your pension under the new flexible arrangement, you may contribute to a pension again, but the amount that you can pay in is restricted. This is called the money purchase annual allowance. The statement now starts a consultation which runs until 15th February 2017 on reducing the current amount you can pay in from £10,000 per annum to £4,000.
The government does not consider that earners aged 55 and over should be able to enjoy double pension tax relief, such as relief on recycled pension savings, but does wish to offer scope for those who have needed to access their savings to subsequently rebuild them.
Most people that access their pension do so and draw an income thereafter. This is simply another limit to be aware of when considering drawing pension benefits which we do with our clients.
State Pension increase to remain in place until 2020 at higher of 2.5% or Consumer Price Index and be reviewed at next Parliament.
We remain unconvinced by the sustainability of the State Pension in the future.
As these continue to be on the increase, the government will shortly publish a consultation on options to tackle pension scams, including banning cold calling in relation to pensions, giving firms greater powers to block suspicious transfers and making it harder for scammers to abuse ‘small self-administered schemes’.
Whilst we do hear of scams from our clients, this is not one that we have tended to come across, but should you believe that someone has contacted you and it is not right, then do let us know as we are happy to help in reporting these matters.
Some employees sacrifice some of their pay for their employer to pay for benefits on their behalf. Therefore, their pay is classified as lower than it would normally be after the benefits are deducted thus reducing the amount on which they pay income tax.
From April 2017, employers and employees who use salary sacrifice schemes to receive various benefits in kind, will pay the same tax as if the benefit had been received as pay/cash.
However, salary sacrifice in lieu of employer pension contributions are excluded from this change (along with pensions advice, ultra-low emission cars, childcare, and the cycle-to-work scheme). All arrangements in place before April 2017 will be protected for up to a year, and arrangements in place before April 2017 for cars, accommodation and school fees will be protected for up to four years.
One for our clients that are employers and to be aware of.
The tax treatment of foreign pensions will be more closely aligned with the UK’s domestic pension tax regime by bringing foreign pensions and lump sums fully into the same tax regime for UK residents.
The government will also close specialist pension schemes for those employed abroad (“section 615” schemes) to new saving.
They will extend the time from 5 to 10 years on taxing pension income over recently emigrated non-UK residents’ foreign lump sum payments from funds that have had UK tax relief, align the tax treatment of funds transferred between registered pension schemes, and update the eligibility criteria for foreign schemes to qualify as overseas pensions schemes for tax purposes.
Personal Allowance and Higher Rate Threshold
The Personal Allowance is currently £11,000 this year, and will rise to £11,500 in 2017/18. The point at which higher rate income tax kicks in will increase from £43,000 this year, to £45,000 in 2017/18. Once the Personal Allowance reaches £12,500, it will increase in line with inflation.
National Insurance contributions: alignment primary and secondary thresholds
The primary and secondary thresholds for employee and employer NI contributions to be payable will be aligned at £157pw from April 2017 (once income exceeds this level, NI becomes payable).
Changes to the tax rates benefit all with the movement of the bands, but these are small changes with wage inflation certainly beating their increments over the years!
Reforms to the taxation of non-domiciled individuals were as follows:
- as previously announced, the government will end the permanency of non-domiciled tax status. From April 2017, non-domiciled individuals will be deemed UK-domiciled for tax purposes if they have been UK resident for 15 of the past 20 years, or if they were born in the UK with a UK domicile of origin. As previously announced, non-domiciled individuals who have a non-UK resident trust set up before they become deemed-domiciled in the UK will not be taxed on income and gains arising outside the UK and retained in the trust. So, if you are not domiciled in the UK you will be after 15 out of 20 years and your estate will be called into the inheritance tax regime in the UK
- from April 2017, inheritance tax will be charged on UK residential property when it is held indirectly by a non-domiciled individual through an offshore structure, such as a company or a trust. This closes a loophole that has been used by non-domiciled individuals to avoid paying inheritance tax on their UK residential property
- the government will change the rules for the Business Investment Relief (BIR) scheme from April 2017 to make it easier for non-domiciled individuals who are taxed on the remittance basis to bring offshore money into the UK for investing in UK businesses. The government will continue to consider further improvements to the rules for the scheme to attract more capital investment in British businesses by non-domiciled individuals.
Savings and investments
Life insurance policies
As announced at Budget 2016 and following consultation, the government will legislate in Finance Bill 2017 regarding the disproportionate tax charges that arise in certain circumstances from life insurance policies when they are partially surrendered and or partly assigned. This will allow applications to be made to HM Revenue and Customs (HMRC) to have the charge recalculated on a just and reasonable basis. This will lead to fairer outcomes for policyholders. The changes will take effect from 6th April 2017.
We tend to consider the most tax efficient way to withdraw funds from your Investment Bonds, but this change will start the process of simplifying these great tax planning vehicles.
Personal Portfolio Bonds
As announced at Budget 2016 and following consultation, the government will legislate in Finance Bill 2017 to take a power to amend by regulations the list of assets that life insurance policyholders can invest in without triggering tax anti-avoidance rules. The changes will take effect on Royal Assent of Finance Bill 2017.
This, we hope, will bring a greater investment horizon to the table for investors where traditional investments are no longer all that we would like clients to be able to access when we look to grow your funds.
Junior Individual Savings Accounts (ISAs) and Child Trust Fund limit
The annual subscription limit for Junior ISAs and Child Trust Funds will be uprated in line with the Consumer Prices Index (CPI) to £4,128, alongside the ISA subscription limit increase from £15,240 to £20,000, which was previously announced at Budget 2016. This will be effective from 6th April 2017.
As the government need to encourage savings to support ourselves over the State systems in the future, this is a necessary move.
New National Savings bond
A new savings bond will be available through National Savings & Investment (NS&I) in spring 2017. The detail will be announced in March but the bond is expected to have an interest rate of around 2.2% gross, and a term of three years. This return might be adjusted to reflect market conditions when the product is launched. Savers over the age of 16 will be able to deposit up to £3,000, with a minimum investment of £100. The government expects around two million people to benefit from the new bond, which will be available for a year.
The rates are better than cash on deposit at this time and a possible place to hold cash where we recommend that you do so. If you would like to know more about National Savings then please do contact the team at KMG.
Insurance Premium Tax
IPT will increase from 10% to 12% in June 2017. IPT is a tax on insurers and it is up to them whether and how to pass on costs to customers.
This is a challenge because the likelihood is insurers will pass this on and all our insurance for the home, car, travel and even the dog will now rise!
Letting agents charging fees to renters
Letting agents will no longer be able to charge renters fees, for example when they sign a new tenancy agreement. This will stop tenants being hit with fees averaging £223 per tenancy. The government will consult on this in due course.
The main rate of corporation tax has already been cut from 28% in 2010 to 20%, and will be cut again to 17% by 2020.
The Government need to continue to make it attractive to do business in the UK, but will this be soon enough?