Chancellor Phillip Hammond delivered an upbeat picture of an improving UK economic outlook but he remains cautious, keeping some leverage in reserve to utilise as Brexit negotiations draw to a conclusion, with a note that, if required, the Spring Statement will be upgraded to a “full fiscal event” or “emergency Budget” if you will.
The chancellor borrowed a phrase well known to clients of Mattioli Woods, emphasising his “disciplined flexibility” of approach – a theme we follow in creating our investment solutions for clients, and one which the chancellor clearly believes is just as appropriate when it comes to the nation’s budget.
The chancellor also talked of the “deal double dividend” – something he sees as the potential upside of securing a Brexit deal good for Britain, removing uncertainty as a result. This would be welcomed by most of our clients as recent volatility has reminded us that markets do not like uncertainty and can react negatively to the merest speculation.
While there were many murmurings of some big changes in pensions and inheritance tax (IHT), no major alterations were announced this time around. Yet, with the Government due to publish the results of a recent consultation on IHT soon, we do expect changes to come at some point and reports last week forewarned of a pensions bill in 2019, which should mark the end of tinkering with pensions for a "considerable period of time".
Of most interest to our clients will be the increase in the lifetime allowance for pensions to £1,055,000. This is to be welcomed, as is a continued commitment to encourage individuals to make substantial tax-privileged investments in the form of ISA savings, with the annual limit remaining at £20,000. The increase in the limit for junior ISAs to £4,368 is particularly welcome as we encourage the creating of a savings culture for generations to come.
Elsewhere, there are some changes to capital gains tax, which will be relevant to clients with let property and those looking to benefit from entrepreneur’s relief. There’s also some interesting developments for anyone affected by the IR35 provisions.
On income tax, meanwhile, there was a surprise announcement – an early implementation of the Conservatives’ manifesto promise to increase the personal allowance to £12,500 and the higher rate threshold to £50,000. These changes – taking affect from April 2019 – will result in many clients having increased net spendable income, which is a welcome inclusion in any Budget statement!
As with every Budget, we will keep a watchful eye on the details that emerge in the coming days, keeping you updated in the areas that matter most to you and your families.
Plus, for our Scotland-based clients, they will have 12 December marked in their diaries (as have we!) as this is when the Scottish Budget will be delivered. This will undoubtedly alter some of the provisions announced yesterday in certain areas of tax devolved to the Scottish parliament. It is also worth noting the Welsh government could also chose to exercise their devolved powers, which could, in turn, have an impact on our clients based in Wales.
This briefing note has been prepared to give you some high-level details of the major changes announced. Therefore, your consultant will be happy to discuss any particular areas you may wish to expand on.
Personal allowances and tax bands
One of the main highlights from the Budget was the bringing forward of the commitment to raise both the personal allowance (PA) and the higher rate tax threshold (HRT). With effect from April 2019 (a year earlier than originally planned), the PA will increase to £12,500 and the HRT to £50,000.
They will remain the same in 2020-2021 before increasing in line with CPI.
For taxpayers who earn more than £100,000 in a tax year, the PA will continue to be reduced – £1 of the personal allowance is lost for every £2 of income over the £100,000 threshold. In 2019/2020, anyone with an income of over £125,000 will not receive any PA.
There will be a different HRT threshold for Scottish taxpayers if the Scottish government continues its current policy strategy and, as mentioned in the introduction, Welsh taxpayers may be affected also.
National insurance contributions
The Government has confirmed it will not look to abolish Class 2 national insurance (NI) contributions at this time.
National living wage
From April 2019, the national living wage will increase from £7.83 an hour to £8.21. The increase in the allowance will benefit around 2.4 million workers and works out at an annual pay rise of £690 for a full-time worker.
Capital gains tax
From April 2020, to target residence relief for owner occupiers, the Government is to modify lettings relief. The changes will mean this only applies where the owner of the property is in shared occupancy with the tenant.
The final period of exemption will also be reduced from eighteen months to nine months. No changes will be made to the thirty-six months exemption period available to disabled people or those in a care home.
Stamp duty land tax
An extension to the relief from stamp duty land tax for first-time buyers was announced. Under previous rules, first-time buyers purchasing property under shared ownership schemes were unable to benefit from it. However, the extension means the relief will now potentially apply to all first-time buyers purchasing qualifying shared ownership property. This extension will be back-dated and will apply to relevant transactions with an effective date of 22 November 2017 or later.
Increases to work allowances will mean working parents and people with disabilities claiming universal credit will be £630 better off each year.
People will also receive extra help as they move from their existing benefits to universal credit, and there will be targeted support for people repaying debts.
Fuel duty will remain frozen for the ninth year in a row, saving the average driver £1,000 since 2010.
Air passenger duty
Air passenger duty on short-haul flights will not rise for the eighth year in a row, keeping costs down for 80% of passengers. Long-haul rates will rise in line with inflation.
Duty on beer, cider and spirits
The Government has frozen the duty on beer, cider and spirits. Effectively, the cost of a pint of beer will be 2p lower than if duty had risen by inflation.
The overall annual ISA subscription limit will remain as is at £20,000 for 2019-2020. This is a generous allocation all clients can take advantage of to build up a tax-free fund of investments for future use.
The standard lifetime allowance for pension savings will increase as indicated in line with CPI to £1,055,000 for 2019-2020. It is good to see the previous commitment to add inflationary increases to the lifetime allowance is being delivered in practice – this will improve retirement plans for many of our clients.
Pensions for the self-employed
Later in the year the Department for Work and Pensions (DWP) will publish a paper setting out the Government’s approach to increasing pension savings for the self-employed. This follows the 2017 review of auto enrolment and will focus on expanding evidence through a programme of targeted interventions and partnerships. We will keep a close eye on this and will provide updates as details emerge.
There has been much speculation on this over recent months. The objective of the dashboard is to collate individuals’ various pension pots to give a single view of these in one place, making it easier to consider pensions when planning for retirement. The Government has confirmed the DWP will consult later in the year on the detailed design for the pensions dashboard, and that it will work closely with technology firms and the pensions industry to do so, utilising extra funding to make it a reality.
It is pleasing to see specific reference to the inclusion of state pension benefits in the dashboard outputs, as these form an important part of many clients’ retirement income strategies.
As a side note, we did notice that communications have been referring to dashboards (plural) – we wonder if this is a signal it is proving difficult to deliver just one vehicle?
Pensions cold calling
The Government has published a response to its consultation on pensions cold calling and will shortly be implementing legislation to make the practice illegal. This is to support their ongoing policy to prevent pension scams, which is something Mattioli Woods strongly supports.
Many of our clients own their own businesses and can take advantage of this valuable relief, which limits capital gains tax to 10% on lifetime gains of up to £10,000,000 on the sale of businesses. From April 2019, to support longer-term business investments, the minimum period throughout which qualifying conditions for relief must be met will be extended from twelve months to twenty four months.
To address an identified abuse of the current rules, in addition to the existing requirements on share capital and voting rights, from 29 October 2018 shareholders must be entitled to at least 5% of the distributable profits and net assets of a company to claim the relief.
From 6 April 2020, private sector medium and large businesses that engage the services of individuals who work through their own service company will need to determine the employment status of that individual as they may need to deduct income tax and NI from the payment they make to that individual’s service company. This is what has been known as ‘off-payroll’ working, and is a regime already in place for public sector bodies.
If you invoice your services through your own company, you could be affected.