In truth, there were no momentous changes to tax or pensions announced in last week’s Budget which will have any significant impact on you, our client.
The key points for us in the 2018/19 tax year as a result of today’s Autumn Budget, and from measures already announced, are:
Pensions
- The pension lifetime allowance will rise to £1,030,000 from £1M and reassuringly there are no changes to the pensions funding limits – i.e. the annual allowance remains at £40,000 and will not be tapered until adjusted income exceeds £150,000
- State Pension and Pension Credit – the basic State Pension will be increased by the triple lock. The rise in April 2018 will be 3%, a cash increase of £3.65 per week for the full basic State Pension.
Income tax
- The personal allowance and higher rate threshold will increase to £11,850 and £46,350. The government is committed to raising the PA to £12,500 and the HRT to £50,000 by 2020.
- The dividend allowance will be cut to £2,000 as already announced – this will hit small and medium sized business owners in particular who take their profits as a dividend. Employer pension contributions will become an even more attractive way of extracting profits from a business.
- Starting rate for savings – the band of savings income that is subject to the 0% starting rate will be kept at its current level of £5,000 for 2018/19.
- There are no changes to any other income tax bands.
Capital gains tax
- The capital gains tax allowance will increase by £400 to £11,700.
Inheritance tax
- As expected, the IHT nil rate band will remain at £325,000 until April 2021 and the residence nil rate band will increase from £100,000 to £125,000. In total that will mean that, from April, couples can leave assets up to £900,000 to future generation free of IHT.
Trusts
- There will be a consultation published in 2018 to consider the simplification and fairness of trust taxation.
ISAs
- Annual ISA limits stay at £20,000 per person, with a range of different ISAs to choose from. Each has its own rules and limits and is designed for different purposes, whether that’s medium or long term investing, or saving for a house deposit. The annual subscription limit for Junior ISAs and Child Trust Funds for 2018/19 will be uprated in line with CPI to £4,260.
Stamp duty land tax
- Stamp duty has been abolished on homes under £300,000 for first-time buyers and they will not pay stamp duty on the first £300,000 for homes worth between £300,000 and £500,000. They will pay the normal rates of stamp duty on the price above that. This will save £1,660 on the average first-time buyer property. This change is effective from 22nd November 2017.
Tax administration and compliance Making Tax Digital (MTD)
- As announced in July and legislated for in the Finance (No. 2) Act 2017, no business will be mandated to use MTD until April 2019. Only those with turnover above the VAT threshold will be mandated at that point, and then only for VAT obligations. The scope of MTD will not be widened before the system has been shown to work well, and not before April 2020 at the earliest.
The Budget was well received by one of the UK’s premier fund managers, Neil Woodford, whose fund, CF Woodford Equity Income, is present in 7 of the 8 in-house model portfolios managed by our Investment Committee. Woodford says “given the constraints, this is a very sensible Budget. From an economic point of view, the long-term initiatives we can see on investment spending, the knowledge economy and housing are very encouraging. I believe this Budget is supportive of the more positive outcome for the UK economy that the funds are positioned for.”
This was the first Autumn Budget of the new Parliament and the first in its new permanent autumn home and provides a welcome breathing space between the announcement of Budget changes and their introduction. This means that we can plan for the tax year ahead with confidence and clarity.
To discuss any Budget implications and for Investment and Pension advice, please contact us.
Please Note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances. The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.
