26 Nov Autumn Statement – Defiant despite u-turn
Welcome to our latest Newsletter which focuses exclusively on the Chancellor’s Autumn Statement.
Whilst on the surface there may not have been too many headline grabbers, once again the detail is where the interesting stories lie, but with both the Treasury and Office of Budget Responsibilities notes running to well over one hundred pages each, it may be some time before the true objectives of this statement are absorbed and understood.
As is our tradition in these policy response notes, we have broken the statement down into a number of key areas.
The OBR forecasts 2.4% growth in 2015, which is unchanged from the July statement, however they now expect 2.4% in 2016, which is an increase of 0.1%, rising to 2.5% in 2017 before slowing again to 2.4% in 2018 and 2.3% in 2019 and 2020.
In terms of the spending review itself, some government departments will be squeezed. The Health and International Aid budgets remain frozen as indicated, however, Defence spending will increase and the predicted cuts to Police spending failed to materialise.
The protected departments make up over 75% of public spending and therefore the axe fell heavily on other departments, with Transport -37%, Energy -22%, Culture Media and Sport -22%, Business -17% and Defra -15%.
CDC Comment – The Chancellor has remained defiant despite the defeat on tax credit reforms, it is clearly his contention that austerity is the key and large cuts are required in the non protected departments which will mean job losses.
Some have argued that the economic growth forecasts are still a little on the optimistic side and perhaps the Chancellor has used this future “growth” and therefore revenue, to placate his supporters who were keen to look at tax credit reforms, but also as some rationale to hold back in even larger spending cuts.
It is clear that recent events in Paris have provided the stimulus to increase defence spending and of course it has meant that proposed cuts to Police spending have not progressed as it would have seemed incongruous with recent events, not to mention politically unpopular.
Our view is that the growth forecasts may be a little over done, however, with the economy clearly growing there will be more pressure to raise interest rates and we suspect that monetary policy tightening will commence around Spring 2016.
Pensions and Savings
The Chancellor confirmed that the Government’s response to this summer’s consultation on reform of pension tax relief will be published as part of next year’s Budget (expected in March 2016) and did not make any mention of the suggested anti-forestalling measures that might have attempted to restrict pension contributions between now and then.
It appears that the much discussed second hand annuity market plans have again been delayed with details promised next month and legislation scheduled for 2017.
With regards to workplace pensions, the Chancellor announced a delay of six months in the phased increases for employer contributions under the auto-enrolment scheme.
However, he also stated that the Government is concerned over the growth of salary sacrifice schemes and are now gathering evidence to decide whether action is needed to reduce the cost to the Treasury.
Greater clarity was provided for state pensions. The new single tier state pension starting future for those reaching state pension age from April 2016 will be £155.65 a week. The Basic state pension will increase by 2.9% from April, seeing an increase of £3.35 to £119.30 a week.
CDC Comment – After successive budgets in which the top story has been Pensions, this statement felt as though the Chancellor was offering some welcome respite from the pace of change for Financial Planners, Businesses and Pensioners alike.
Clearly there is a desire to reform pension contribution tax relief, however, in the absence of anti-forestalling measures, one could argue that it is still a “buy now whilst stocks last” environment for pension contributions and therefore we would encourage clients to take advantage of generous tax reliefs before these are removed.
Within the workplace arena the Chancellor has given with one hand and appears to be preparing to take away with another. The delays in increasing employer’s contributions through auto-enrolment will certainly be welcome by businesses, however, individuals who take advantage of salary sacrifice as a tax saving exercise may find that the criteria to qualify likely to become more stringent in the future.
The rate of increase in State Pension is a welcome move for many and at an inflation busting 2.9% increase could be seen as very generous indeed. The clarity of rates of payment does mean that it is easier for pensioners to plan their private savings, the Chancellors preferred choice, to meet their retirement expectations.
Personal tax rates and allowances will remain at the levels announced in the summer budget, therefore the Personal Allowance increases to £11,000 and higher rate threshold to £43,000.
There was confirmation of the previously announced changes to dividend taxation with the removal of the dividends tax credit system and introduction of a tax free dividend allowance of £5,000 and dividends in excess of this taxed at 7.5%, 32.5% or 38.1% depending on the tax status of the recipient.
ISA allowance limits will remain unchanged from April 2016 at £15,240. The limit will usually increase in line with CPI, however, given that the CPI measure in September was nil, there will be no increase this year.
CDC Comment – There was nothing new in this announcement in relation to taxation. The dividend tax changes in the new tax year will mean a range of winners and losers and care will be needed in calculating the individual impact on each investor.
Of greater note for the new tax year are the previously announced changes to the following:
- Pension Lifetime Allowance cut reduced from £1.25m to £1m.
- Pension Annual Allowance cut for high earners, with the standard annual allowance being reduced £1 for every £2 of income over £150,000 of income.
- Personal Savings allowance introduced from April 2016, meaning the first £1,00 of interest will be tax free (£500 for Higher rate tax payers, whilst additional rate tax payers will not benefit at all).
- Ability to replace ISA withdrawals. ISA savers will be able to “dip” into their savings and replace them without it affecting their annual subscription allowances.
Clearly there are some major plans afoot in pension and personal taxation and we will of course be vigilant in monitoring any changes that affect our clients, however, if you have any queries, please do contact your adviser for assistance.
Buy to Let investors were hit particularly hard. The first piece of bad news is the introduction of an increased rate of stamp duty payable on the purchase of second properties worth more than £40,000 from April 2016. An additional 3% will be payable on top of the standard stamp duty rates.
Additionally, Capital Gains Tax on the sale of second homes will need to be settled with HMRC within 30 days of a disposal from April 2019, which could bring the payment of CGT forward by almost 22 months.
Finally, these measures are in addition to the proposals to restrict mortgage interest relief on buy to let property to just basic rate.
CDC comments – those clients who hold or intend to purchase/sell investment properties should take care, whilst those with mortgages on buy to let property will see their tax position change. Again we would recommend that you consult your adviser if that is of concern.
Finally the expected results of the review of inheritance tax avoidance through “deeds of variation” did not materialise meaning that this is an area of planning still available, for now.