Autumn Statement 2016
The outcome of Philip Hammond’s first Autumn Statement didn't contain any major tax or pensions changes that have any immediate impact. One notable change is that in future the Budget Day will switch from spring to autumn, with a toned down statement on the economy delivered each March.
The key points for investors from today's statement are:
Reduced Money Purchase Annual Allowance
The Chancellor announced just one cut to pension allowances. The Money Purchase Annual Allowance (MPAA) is set to be cut from £10,000 to £4,000 from April 2017 (subject to consultation). This only affects those clients who have accessed their DC pension under the new pension flexibilities and continue to pay into their pension.
With the right strategy, this doesn't have to be an issue. Just taking the tax free cash out of a pension, without drawing an income, doesn’t trigger the reduced annual allowance. And anyone who was already in capped drawdown before 6 April 2015, and doesn’t exceed their ‘capped’ income limit, will also retain a £40k allowance.
Some older pension schemes may only offer Uncrystallised Pension Funds Lump Sums (UFPLS), where each withdrawal is fixed as 25% tax free cash and 75% taxable income. This will automatically trigger the cut to the £4k allowance. This announcement therefore further enhances the need to review existing pension provisions, as a move to a modern flexible pension which offers the full range of flexible income options can help by allowing just tax free cash to be taken whilst retaining the higher annual allowance.
Salary sacrifice remains a tax efficient choice for pension savers
There will be no changes to the funding of pensions via salary sacrifice. This is good news for pension savers, including all those who have chosen salary sacrifice as part of their auto-enrolment arrangements.
Certain other employee benefits will no longer receive the tax and NI advantages of salary sacrifice from April 2017, meaning they'll be in the same position as other workers who buy benefits out of their net pay. This will include exchanges for benefits such car purchases, parking, school fees, gym memberships, travel insurance and smart phones, although there will be some protection for existing arrangements until April 2018 (2021 for cars and school fees). By 2018/19 this action is expected to raise an additional £235m in tax revenue.
Salary sacrifice allows employees to boost their pension pots through savings in employer and employee NI following an agreed reduction in pay. A higher rate taxpayer could increase their pension contribution by up to 18% by reinvesting their savings in employer and employee NI.
2017/18 income tax rates and bands confirmed
The increase in the personal allowance in 2017/18 is confirmed as £11,500 and the higher rate threshold will rise to £45,000. Increases are planned to £12,500 and £50,000 respectively by 2020. In light of this and In order to secure a sustainable tax base, it is suggested the government will tackle tax avoidance schemes, ensure multinational companies pay their fair share, and to phase out the tax advantages of salary sacrifice arrangements.
Different bands will apply in Scotland as a result of devolved powers.
Remedy for bond gain pain – but prevention is better than cure
Investment bond owners who unwittingly face a large tax charge as a result of surrendering part of their bond will have a remedy from 6 April 2017.
Many bonds are set up with multiple identical segments for flexibility on encashment, allowing each segment to be cashed in independently. But a large surrender can also be taken from all the segments – which may lead to an unexpected chargeable gain which bears no resemblance to the actual investment performance.
As more bond providers adopt the ‘ABI best practice’ on surrenders, the number of cases slipping through the net and requiring rectification should be minimal. However, savers who find themselves in these circumstances will be able to apply to HMRC to have the gain recalculated on a ‘just and reasonable’ basis. Further detail on how this will work is expected in Finance Bill 2017.
National Insurance
The National Insurance secondary (employer) threshold and the National Insurance primary (employee) threshold will be aligned from April 2017, meaning that both employees and employers will start paying National Insurance on weekly earnings above £157. This is an increase from the current figures of £155 (employee) and £156 (employer).
Insurance Premium Tax
Insurance Premium Tax will rise from 10% to 12% in June 2017, raising an expected £680m in 2017/18 tax year and increasing amount thereafter. This increase will therefore be passed on to the consumer with regards to general insurance, increasing the need to review this annually.
Reforms to the taxation of non-domiciled individuals
From April 2017, inheritance tax will be charged on UK residential property when it is held indirectly by a non-domiciled individual to avoid paying inheritance tax on their UK residential property.
Changes will also be made to the rules for the Business Investment Relief (BIR) scheme from April 2017 to make it easier for non-domiciled individuals who taxed on the remittance basis to bring offshore money into the UK for the purpose of investing in UK businesses.
Savings
National Savings & Investments (NS&I) is to offer a 3-year savings bond. The indicative rate is 2.2% but this may be adjusted to reflect market conditions when the product is launched. The bond will be open to those aged 16 and over, subject to a minimum investment limit of £100 and a maximum investment limit of £3,000. It is intended this will be available in spring 2017 for a limited period.
What we already knew
Here’s a reminder of what we already knew was coming in 2017/18:
Should you have any queries or concerns your Fairey Associates adviser will be happy to help.
The outcome of Philip Hammond’s first Autumn Statement didn't contain any major tax or pensions changes that have any immediate impact. One notable change is that in future the Budget Day will switch from spring to autumn, with a toned down statement on the economy delivered each March.
The key points for investors from today's statement are:
Reduced Money Purchase Annual Allowance
The Chancellor announced just one cut to pension allowances. The Money Purchase Annual Allowance (MPAA) is set to be cut from £10,000 to £4,000 from April 2017 (subject to consultation). This only affects those clients who have accessed their DC pension under the new pension flexibilities and continue to pay into their pension.
With the right strategy, this doesn't have to be an issue. Just taking the tax free cash out of a pension, without drawing an income, doesn’t trigger the reduced annual allowance. And anyone who was already in capped drawdown before 6 April 2015, and doesn’t exceed their ‘capped’ income limit, will also retain a £40k allowance.
Some older pension schemes may only offer Uncrystallised Pension Funds Lump Sums (UFPLS), where each withdrawal is fixed as 25% tax free cash and 75% taxable income. This will automatically trigger the cut to the £4k allowance. This announcement therefore further enhances the need to review existing pension provisions, as a move to a modern flexible pension which offers the full range of flexible income options can help by allowing just tax free cash to be taken whilst retaining the higher annual allowance.
Salary sacrifice remains a tax efficient choice for pension savers
There will be no changes to the funding of pensions via salary sacrifice. This is good news for pension savers, including all those who have chosen salary sacrifice as part of their auto-enrolment arrangements.
Certain other employee benefits will no longer receive the tax and NI advantages of salary sacrifice from April 2017, meaning they'll be in the same position as other workers who buy benefits out of their net pay. This will include exchanges for benefits such car purchases, parking, school fees, gym memberships, travel insurance and smart phones, although there will be some protection for existing arrangements until April 2018 (2021 for cars and school fees). By 2018/19 this action is expected to raise an additional £235m in tax revenue.
Salary sacrifice allows employees to boost their pension pots through savings in employer and employee NI following an agreed reduction in pay. A higher rate taxpayer could increase their pension contribution by up to 18% by reinvesting their savings in employer and employee NI.
2017/18 income tax rates and bands confirmed
The increase in the personal allowance in 2017/18 is confirmed as £11,500 and the higher rate threshold will rise to £45,000. Increases are planned to £12,500 and £50,000 respectively by 2020. In light of this and In order to secure a sustainable tax base, it is suggested the government will tackle tax avoidance schemes, ensure multinational companies pay their fair share, and to phase out the tax advantages of salary sacrifice arrangements.
Different bands will apply in Scotland as a result of devolved powers.
Remedy for bond gain pain – but prevention is better than cure
Investment bond owners who unwittingly face a large tax charge as a result of surrendering part of their bond will have a remedy from 6 April 2017.
Many bonds are set up with multiple identical segments for flexibility on encashment, allowing each segment to be cashed in independently. But a large surrender can also be taken from all the segments – which may lead to an unexpected chargeable gain which bears no resemblance to the actual investment performance.
As more bond providers adopt the ‘ABI best practice’ on surrenders, the number of cases slipping through the net and requiring rectification should be minimal. However, savers who find themselves in these circumstances will be able to apply to HMRC to have the gain recalculated on a ‘just and reasonable’ basis. Further detail on how this will work is expected in Finance Bill 2017.
National Insurance
The National Insurance secondary (employer) threshold and the National Insurance primary (employee) threshold will be aligned from April 2017, meaning that both employees and employers will start paying National Insurance on weekly earnings above £157. This is an increase from the current figures of £155 (employee) and £156 (employer).
Insurance Premium Tax
Insurance Premium Tax will rise from 10% to 12% in June 2017, raising an expected £680m in 2017/18 tax year and increasing amount thereafter. This increase will therefore be passed on to the consumer with regards to general insurance, increasing the need to review this annually.
Reforms to the taxation of non-domiciled individuals
From April 2017, inheritance tax will be charged on UK residential property when it is held indirectly by a non-domiciled individual to avoid paying inheritance tax on their UK residential property.
Changes will also be made to the rules for the Business Investment Relief (BIR) scheme from April 2017 to make it easier for non-domiciled individuals who taxed on the remittance basis to bring offshore money into the UK for the purpose of investing in UK businesses.
Savings
National Savings & Investments (NS&I) is to offer a 3-year savings bond. The indicative rate is 2.2% but this may be adjusted to reflect market conditions when the product is launched. The bond will be open to those aged 16 and over, subject to a minimum investment limit of £100 and a maximum investment limit of £3,000. It is intended this will be available in spring 2017 for a limited period.
What we already knew
Here’s a reminder of what we already knew was coming in 2017/18:
- IHT residence nil rate band
From April clients may be entitled to an extra £100k IHT nil rate band where the family home passes to direct descendants on death. - Lifetime ISA introduction
Under 40s will have a new savings option which can help them to get a foothold on the property. Up to £4,000 a year can be paid into the Lifetime ISA and receive a 25% Government Bonus. First time house buyers can access their fund tax free prior to age 60. - £20k ISA Allowance
The ISA savings allowance is set to receive an above inflation increase. Savers will be able to enjoy an additional £4,760 of tax free savings. - Corporation Tax cut
The rate of Corporation Tax will be cut from 20% to 19% from 1 April, with a further cut to 17% to follow in April 2020.
Should you have any queries or concerns your Fairey Associates adviser will be happy to help.
