This will be the last Autumn Statement. In future, the Budget Day will switch from spring to autumn, with a toned down statement on the economy delivered each March. This will give welcome breathing space between the announcement of budget changes and their introduction.
- Philip Hammond’s first Autumn Statement didn’t contain any major tax or pensions changes that have any immediate impact for investors.
- There was welcome news that pension tax relief remains untouched. It appears that now is still not the time for a major pensions shake up, but it could be the perfect time to maximise funding and secure higher rate tax relief.
- This will be the last Autumn Statement. In future, the Budget Day will switch from spring to autumn, with a toned down statement on the economy delivered each March. This will give welcome breathing space between the announcement of budget changes and their introduction.
- The key points from today’s statement were:
Reduced Money Purchase Annual Allowance
- 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 investors who have accessed their Defined Contribution pension under the new pension freedoms and continue to pay into their pension.
- Just taking the tax free cash out of a pension, without drawing an income, doesn’t trigger the reduced annual allowance.
- Anyone who was already in capped drawdown before 6 April 2015, and doesn’t exceed their ‘capped’ income limit, will retain a £40,000 allowance.
- For many investors, the first time they dip into their pensions will be the day they stop work. So a drop in their annual allowance is of no significance. But some may wish to phase their retirement, perhaps by cutting their working hours. These investors may still wish to continue funding or more importantly could be benefiting from employer contributions.
- 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 £4,000 allowance.
Salary sacrifice remains a tax efficient choice for pension savers
- There will be no changes to the funding of pensions via salary sacrifice.
- Certain other employee benefits will no longer receive the tax and National Insurance 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).
- Salary sacrifice allows employees to boost their pension pots through savings in employer and employee National Insurance 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 National Insurance.
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.
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.
- 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.
What we already knew
- IHT residence nil rate band
From April you may be entitled to an extra £100,000 Inheritance Tax nil rate band where the family home passes to directly to 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. For further details see our Guide to ISAs. - £20,000 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 2017, with a further cut to 17% to follow in April 2020. Business owners may want to consider accelerated pension funding ahead of any rate cut to reduce profits which would otherwise by taxed at the higher rate.
If you wish to take a step in the right direction with planning your finances, please feel to call us on 01626 833225 or email us at to find out more or to arrange an initial complimentary meeting.
Important Information
Please note that the above article does not constitute financial advice.
The views and opinions contained herein are those of Loughtons Independent Financial Advisers and may not necessarily represent views expressed or reflected in other economic communications, strategies or funds.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Loughtons Independent Financial Advisers does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Loughtons Independent Financial Advisers has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system.
Loughtons Independent Financial Advisers is a trading name of JPRS (South West) Limited.
JPRS (South West) Limited is authorised and regulated by the Financial Conduct Authority.