Roundup of the Autumn Statement 2016
Following this afternoon’s Autumn Statement, our financial planning team and technical specialists have written a short summary of the key announcements that may affect you and your personal finances.
The Chancellor announced his recommitment to increase the Income Tax Personal Allowance, signalling some help for the JAMs (the Just About Managing), albeit thinly spread, allowing for more jam tomorrow with plans to prioritise ‘high-value’ investment for the future in infrastructure and innovation.
Those saving for retirement will be relieved that changes to pensions were notably limited this time, and the triple lock on State Pension benefits has been preserved. Elsewhere there was no negative news for investors, with the increase in the ISA allowance to £20,000 from next April being restated.
Read on for the other key Autumn Statement announcements.
Abolition of the Autumn Statement
This was the first Autumn Statement since the EU Referendum and it will also be the last, as a decision was made that, in the Chancellor’s words, will “chart a new future for our country”.
Mr Hammond revealed his plan to do away with the whole event and move the Budget to the autumn – a sensible move that allows tax changes to be announced well in advance of the new tax year. After 2017, the spring Budget will be replaced with a scaled down ‘Spring Statement’. This will respond to official economic forecasts but not normally announce major fiscal changes.
The ‘triple lock’ remains
There was concern ahead of the Autumn Statement from various parties, including former pensions minister Baroness Altmann, that the ‘triple lock’ protection for the State Pension was unsustainable due to the annual cost to the Treasury. Despite the speculation that it might be abolished, the Chancellor announced the Government’s commitment to retaining the triple lock. This means the State Pension will continue to rise each year by the highest of growth in average earnings, the Consumer Prices Index (CPI) or 2.5%.
Money Purchase Annual Allowance (MPAA)
On 6 April 2015, the Government introduced a restriction on the amount you can contribute into pensions once you have drawn taxable pension benefits under the new pension freedom rules. This Money Purchase Annual Allowance (MPAA) was introduced as an anti-avoidance measure to tackle the recycling of pension income and subsequent double tax relief on pension contributions. The allowance is currently £10,000 but will reduce to £4,000 from 6 April 2017.
The tax treatment of overseas pensions being paid to UK tax residents will be more closely aligned with domestic UK pensions. The lump sum and pension income from such overseas schemes will be treated in the same way.
For those emigrating from the UK and opting to transfer their UK pensions into overseas schemes, such as Qualifying Recognised Overseas Pension Schemes (QROPS), the time during which the pensions will remain subject to UK pension taxation will be extended from 5 years to 10 years. In addition, the Government will update the criteria by which foreign pensions qualify as recognised overseas schemes.
The introduction of pension flexibility rules has seen an increase in pension cold callers and scammers. The Government has announced a consultation to tackle both of these areas.
Next year the Personal Allowance will rise to £11,500. The Chancellor also reconfirmed that it is his intention to raise the allowance to £12,500 over the course of this parliament, and raise the higher-rate threshold to £50,000.
Capital Gains Tax
No new announcements were made, so the current rates will remain – 10% for basic-rate taxpayers (18% for gains on property) and 20% for higher-rate taxpayers (28% for gains on property).
No new announcements were made regarding Inheritance Tax. April will still see the introduction of the Residence Nil Rate Band. This will be an additional allowance of £100,000 (increasing progressively to £175,000 by April 2020) that can be used against the value of your home if it is left to children or grandchildren. The allowance will be reduced or eliminated for estates worth more than £2 million.
The previously announced changes to the non-domiciled tax status will be introduced in April 2017. These effectively prevent UK residents from being permanently classed as non-domiciled, and prevent them from avoiding Inheritance Tax on residential property held in trusts or companies.
Insurance Premium Tax
The Chancellor announced an increase in Insurance Premium Tax from 10% to 12% from 1 June 2017.
NS&I Investment Bond
To support savers, NS&I will offer a new three-year investment bond with an indicative rate of 2.2% from April 2017. The bond will offer the flexibility to save between £100 and £3,000 and will be available to those aged 16 or over.
The starting income, above which employees and employers become liable for National Insurance (NI) contributions, will be aligned at £157 per week from 2017. This will not increase the costs for employees but will for employers. However, it does simplify the current position where there are differing starting points.
As previously announced the Class 2 NI contribution will be abolished from April 2018. Self-employed workers will instead pay NI via Class 3 and 4, which will again simplify current arrangements.
From April 2018 all termination payments over £30,000, which are subject to Income Tax, will also be subject to employer NI contributions.
Currently employers can choose to remunerate employees in a range of ways in addition to their cash salaries. The tax treatments of these remunerations currently differ, leading to some being treated more generously than others. From April 2017 the tax and employer NI advantages will be removed, except where these arrangements relate to pensions, childcare, cycle to work schemes and ultra-low emission cars.
Arrangements in place before April 2017 will be protected until April 2018 and arrangements for cars, accommodation and school fees will be protected until April 2021.
An economic overview
Louie French, Research Analyst has also written an economic overview of the Autumn Statement and what it could mean for investors.Read Louie's article
We hope you have found this Autumn Statement update helpful. Please do get in touch if you have any questions or would like more information.
The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested.
The above article is based on our interpretation of the Autumn Statement 2016 and related legislation; it is not intended as advice, and the impact of any changes to tax rates or allowances will depend on your personal circumstances. Please note we do not provide tax advice.