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UK Autumn Budget Summary

24 November 2017

Budget

Almost exactly a year ago the Chancellor, Philip Hammond, announced to a surprised House of Commons that he was making his last Autumn Statement. This puzzling news was rapidly explained in the next few sentences, as the Chancellor revealed that he would be moving onto an Autumn Budget cycle in 2017, following a final Spring Budget earlier in the year.

A considerable amount of (political) water has flowed under the bridge since Mr Hammond effectively abolished the Autumn Statement. At one point, the March Budget did look like his last after he was forced into a rapid U-turn on increases to Class 4 National Insurance contributions (NICs). Then came a snap election which kicked many of the Budget’s measures into a limbo from which they have only just emerged. Ironically, the pundits generally agree that the election was also the reason why Mr Hammond remains in post – for the time being.

Thus, Mr Hammond presented his second Budget of 2017 against a different – and in many ways more difficult – backdrop from the first. The remnants of his previous Spring Budget were still haunting parliament until the Finance Bill 2017/19 received Royal Assent just six days before the Autumn Budget Day. The Government is relying on a confidence and supply agreement with the DUP to pass its Budget measures, past and present, support which itself cost an unbudgeted £1bn of extra expenditure.

Mr Hammond can at least take some comfort from the financial figures that have emerged since March. Back in the Spring the Office for Budget Responsibility (OBR) was forecasting that the government would end up borrowing £51.7bn in 2016/17 and £58.3bn (13% more) in this financial year. Ever since the actual numbers have been improving. The latest estimate for last year’s borrowing is £45.7bn, while seven months into the current financial year, figures released on Tuesday showed borrowing was £4.1bn less than at the same stage in 2016/17.

This might appear to have given the Chancellor "wriggle room", but the OBR has made adjustments to its assumptions, notably productivity growth, which reinstated the Treasury’s limited room for manoeuvre. The OBR has also cut its growth forecast for this year from the 2.0% it saw in March to 1.5%, 0.1% lower than the central assumption made by the Bank of England earlier this month in its Quarterly Inflation Report. Economic growth further out is also disappointing: the OBR says that by 2021/22 the UK economy will be 2.1% smaller than implied by its March growth forecasts.

Inflation, running at 3.0% on the CPI measure (and 4.0% on the old RPI yardstick), is expected to fall to 2.4% in 2018 and 1.9% the following year. While working-age benefits generally remain frozen, the government finances still suffer because of the knock-on effect on index-linked gilts. This was a problem highlighted in the most recent public sector finance figures, which showed the £6bn government interest costs in October were the highest ever recorded for that month. However, the government remains able to borrow 10-year money via the conventional gilts market at a rate of around 1.25% – just as well with nearly £120bn of borrowing to undertake in 2018/19.

So what did emerge from this first Autumn Budget? With so many constraints and the lessons of March firmly in mind, the Chancellor was predictably cautious but, as usual, there were a few surprises, both good and bad:

• An exemption from SDLT on the first £300,000 of property value for first-time buyers (outside Scotland) buying homes worth not more than £500,000.

• A £1,350 rise in the higher rate threshold for 2018/19, to £46,350, moving towards the 2020/21 target of £50,000. However, this will not apply fully to Scotland, which sets its own higher rate threshold for non-savings and non-dividend income and, in 2018/19, may well reveal its own income tax rates on its Budget Day, 14 December.

• A £400 increase in the capital gains tax annual exemption to £11,700.

• The first inflation- linked increase in the lifetime allowance, to £1.03m – and no changes to the annual allowance.

• Higher tax on diesel company cars, but no tax charge on workplace supplied electricity to recharging of employees’ electric or hybrid vehicles.

In this Bulletin we look at the impact of the main changes on various groups of taxpayers. The categorisation is inevitably rather arbitrary, so it pays to read all sections. Similarly, several of the tax planning points – such as those listed below in our 12 Quick Tax Tips – are universal.

If you need further information on how you will be affected personally, you are strongly recommended to consult your financial adviser. 

12 Quick Tax Tips

1. Don’t waste your (or your partner’s) £11,850 personal allowance in 2018/19.

2. Don’t forget the personal savings allowance, reducing tax on interest earned.

3. Think about any changes you need to make when the dividend allowance is cut.

4. Don’t ignore National Insurance contributions – they are really a tax at up to 25.8%.

5. Think marginal tax rates – the system now creates 60% (and higher) marginal rates.

6. ISAs should normally be your first port of call for investments and then deposits.

7. Even if you’re eligible for a LISA, you still might find a pension is a better choice.

8. Tax on capital gains is usually lower and paid later than tax on investment income.

9. Trusts can save inheritance tax, but suffer the highest rates of CGT and income tax.

10. File your tax return on time to avoid penalties and the taxman’s attention.

11. If you must have a company car, consider a hybrid to save income tax.

12. Don’t assume HMRC doesn’t know: automatic information exchange has started.

 



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