Autumn Statement 2016
24 November 2016
We have had the chance to look at the Chancellor’s first and last Autumn statement; and now look at those areas which may impact individuals and their families.
The changes to the personal allowance and thresholds, effective from 6 April 2017, had already been announced. Someone on the UK’s average income will see their spendable income increased by £100 a year from April 2017.
There will be sweeping changes to salary sacrifice arrangements, typically used by employees to fund certain expenditure (benefits in kind) out of income before tax and national insurance (NI). While pension contributions, childcare, cycle to work and ultra-low emission cars are to be unaffected, private medical, gym memberships and even buying additional holiday may all be impacted. There will be limited protection for arrangements in place at April 2017.
The ISA allowance is to increase from £15,240 to £20,000 a year from April 2017. This should continue to encourage saving in this popular and, to date, relatively simple savings product.
The launch of the LISA (Lifetime Individual Savings Allowance) is to proceed. This product is more complicated and less flexible than existing ISAs and only available for those aged 18-40. Access to the funds will be restricted until age 60 unless used towards the purchase of a first home. However, the 25% annual contribution from the government up to a maximum of £1000 may prove to be attractive.
The Chancellor announced a new offering from NS&I, a three- year savings bond available from Spring 2017. An “indicative rate” of 2.2% per year has been suggested, but could be adjusted to reflect market conditions once the product is launched.
We saw relatively little change in this area although, as is often the case, the devil is in the detail. Foreign pensions are to be “more closely aligned with UK’s domestic pension tax regime” but we do not yet have clarity on the specific proposals.
The Money Purchase Annual Allowance is to reduce from £10,000 to £4,000. This is the maximum allowable pension contribution available to someone who has accessed pension flexibility. Whilst this may not affect many, those who have taken money from a pension scheme and are still working may wish to investigate the possible effect of this change.
Take for example Stuart, aged 59 and unfortunately made redundant. He decided at that time to take some tax-free cash from his pension to redeem his mortgage. At the same time he decided to take pension income of £500 per month to supplement his income while he considered alternative employment. After a few months he joined a new company and was automatically enrolled into the company’s pension scheme. His own pension contributions together with those from his employer totalled £6,000 a year. Under the new rules, these contributions exceed the new limit and Stuart would therefore suffer a tax charge.
- Corporation tax – currently 20%, this will reduce to 19% from April 2017 with a goal to reduce this to 17% by 2020.
- Non-domiciled individuals – the heavily trailed changes to the tax treatment of non-UK domiciled individuals will take effect from April 2017. Those who have been UK resident for 15 of the past 20 years will be deemed domiciled in the UK. Also, UK property owned by non-UK domiciled individuals will be subject to inheritance tax, even where that property is held through an offshore structure.
- Tax avoidance and evasion – measures are introduced which target the promotion of tax avoidance schemes and other historic offshore tax evasion.
All in all a relatively quiet Autumn statement but one which contains some tax efficient savings opportunities and also some potential tax liabilities to be aware of.