We have summarised below the key points announced in the 2016 Autumn Statement. This was the first statement from the new Chancellor, Phillip Hammond, and the first since the referendum. The statement contained a lot of detail on the performance of the UK economy and the change in fiscal targets, but contained few major tax changes.
The purpose of this summary is to make you aware of the key points that affect financial planning.
‘Money Purchase Annual Allowance’ for Pension Contributions
The Money Purchase Annual Allowance is the cap on pension contributions that applies once benefits have been taken ‘flexibly’. It was designed to prevent tax free lump sums being reinvested for more tax relief; a concept known as ‘recycling’. The allowance will be reduced from £10,000 per annum to £4,000 per annum from April 2017. This is under consultation.
Very few people make contributions over £4,000 per annum in retirement, and those that planned to are unlikely to have triggered the reduced allowance. This was a fairly minor change that should not have much of an impact on pension savers.
The government will shortly publish a consultation on options to tackle pension scams, including banning cold calling in relation to pensions, giving firms greater powers to block suspicious transfers and making it harder for scammers to abuse Small Self Administered Schemes
The ISA allowance is going to increase from £15,240 to £20,000 on 6th April 2017, as previously announced.
The annual subscription limit for Junior ISAs and Child Trust Funds will be uprated in line with the Consumer Prices Index (CPI) to £4,128.
The Personal Allowance will increase from £11,000 to £11,500 and the Higher Rate threshold will increase from £43,000 to £45,000 from 6th April 2017.
Income above the personal allowance of £11,500 will therefore be taxed as follows:
|Basic rate 20%||£0-32,000|
|Higher rate 40%||£32,001-150,000|
|Additional rate 45%||Over £150,000|
Once the personal allowance reaches £12,500, it will then rise in line with Consumer Price Index (CPI) as the higher rate threshold does, rather than in line with the National Minimum Wage.
The band of savings income that is subject to the 0% starting rate will remain at its current level of £5,000 for 2017/18.
The £5,000 dividend nil rate will remain in place for 2017/18, as will the personal savings allowance of £1,000 (£500 for higher rate taxpayers).
There will be no changes to the funding of pensions via salary sacrifice. Salary sacrifice allows employees to boost their pension pots through savings in employer and employee National Insurance (NI) following an agreed reduction in pay. A higher rate taxpayer could increase their pension contribution by up to 18% by reinvesting their savings in employer and employee NI.
However, certain other employee benefits will no longer receive the tax and NI advantages of salary sacrifice from April 2017, meaning they’ll be in the same position as others who buy benefits out of their net pay. This will include exchanges for benefits such car purchases, parking, school fees, gym memberships, travel insurance and smart phones, although there will be some protection for existing arrangements until April 2018 (2021 for cars and school fees).
Life Insurance Policy Part Surrenders and Part Assignments
The government has confirmed that they will legislate in Finance Bill 2017 on the disproportionate tax charges which can arise on some gains from life insurance policy part surrenders and part assignments.
This new legislation will allow applications to be made to HM Revenue and Customs to have the charge recalculated if an alternative calculation gives a lower tax charge. This change will be effective from April 2017.
Insurance Premium Tax
The rate of insurance premium tax has 10% to 12%. This increase will take effect in June 2017.