Yesterday Philip Hammond, delivered his first and last Autumn Statement. Much has been written since about his attempts to ensure Britain is – in his words – “match-fit” in time for the triggering of Article 50 early next year. And while we all hope that the Great British economy is more Andy Murray than Wayne Rooney on that fateful day, rather less has been written about how the announcements might affect your finances.
The headline announcement here seemed initially quite high profile but in fact will not affect very many people.
It concerns the ‘money purchase annual allowance’, which affects people whose pensions are already in the new style of drawdown called Flexible Access Drawdown (FAD), but not those in the older version, capped drawdown.
Individuals who have used FAD will, from April 2017, only be allowed to contribute £4,000 per annum to pensions. The Chancellor said that some individuals were using the rules for tax avoidance, although we haven’t seen any evidence of this ourselves.
If you are ‘in drawdown’ but are unsure of which version you have, just let us know.
The Chancellor also confirmed the current ‘ordinary’ annual allowance – the amount that most individuals can contribute to a pension – will remain at £40,000 and the Lifetime Allowance – the maximum size of pension fund allowed before tax charges hit – will also remain unchanged at £1,000,000.
Meanwhile, the previous government’s flagship ‘triple-lock’ for the State Pension also remains in place until the end of the current parliament. Please excuse our scepticism on this point as the generous escalation looks unaffordable in the longer term and will surely be reduced at some stage.
Finally under pensions, rules will be introduced to try and stop cold calling and other high pressure sales tactics, some of which leave the individual will significant (and unexpected) tax bills.
The pledge to raise the personal allowance to £12,500, and the higher rate threshold to £50,000 by 2020 were both affirmed, after which they will rise with inflation. The latter increase is particularly overdue as many more people now fall into Higher Rate Tax than just a few years ago, despite very low wage inflation.
The Government will also begin to deliver tax-free child care from 2017. Additionally, fuel duty will remain frozen for a seventh year.
Savings & Investments
Many of you will be pleased to hear that savers have been catered for with a new “market-leading” Investment Guaranteed Growth Bond courtesy of National Savings & Investments. They are to be launched in the spring and details are yet to be fleshed out, however they are expected to pay 2.2pc over three years.
The catch? There is a maximum deposit of a relatively modest £3,000 meaning the interest will be £66. However, unlike the recent limited edition Guaranteed Growth Bonds, which were available in 2015, they will also be available for people of all ages and not just the over 65s.
While returns of this sort may not quite be sufficient to get pulses racing, of perhaps greater significance was the re-confirmed increase to the annual ISA limit from £15,240 in this tax year to £20,000 in the next.
Junior ISAs will also increase by a modest amount to £4,128. While this is a welcome addition, we retain our view that they may not be suitable in all cases, as any funds within them legally become the child’s at age 18.
Insurance Premium tax – another non-discretionary purchase for most people and therefore really a stealth tax – will rise again from 10% to 12%.
If that doesn’t sound too dramatic please bear in mind that the tax was only introduced in 1994, at 2.5%, and will now have effectively doubled since George Osborne increased it from 6% to 9.5% only last year. The tax affects 50 million policies across the country, held by businesses, individuals and charities.
A commitment to reduce corporation tax to 17% was announced and it should be an interesting ‘race to the bottom’ if President Elect Trump carries out his promise to slash corporation tax in the US too.
The Chancellor has announced sweeping changes to the taxation of company benefits such as gym memberships, but importantly ‘pension salary sacrifice’ was exempt. Our initial understanding is that ‘flexible Death in Service’ life assurance may not be exempt, and this is something we are looking for further clarification on as it will affect some of our clients.
As always if you have any questions or queries, please do not hesitate to let us know.