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Spring Budget 2017: What it means to you

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Spring Budget 2017

Our full Spring Budget guide is now available for you to read which you can find by clicking here, we hope you find it of interest.

Update 15 March 2017. The Chancellor announced that the planned increase in Class 4 National Insurance contributions for the self-employed would not now take place during the current parliament. This follows concerns voiced that such action would breach the government’s election manifesto not to raise income tax or National Insurance.

Philip Hammond’s first (and last) Spring Budget certainly wasn’t one for the history books.  The biggest shock was for the self-employed who will see their National Insurance contributions increased from April 2018.  The Budget speech was at times more reminiscent of an end of the pier comedy routine with jokes aplenty, mostly aimed as per tradition, at the leader of the opposition.  With regards to content (particularly pertaining to Financial Services) it was pretty slim.  The dividend allowance is reducing to £2,000 from 2018 and Hammond commented on penalties for tax avoidance schemes. 

Given the amount of disruption caused to the industry over the past few Budgets this could be the calm before the storm.  The Chancellor had previously stated that he intended this Budget to be ‘policy light’ and with Brexit looming and the first Autumn Budget planned for later in the year, the reprieve may be short lived.  

Our summary sets out the main changes to tax rates and allowances for individuals, companies and trustees. It also aims to identify other notable changes.

Income Tax

  • In perhaps a surprise move the Chancellor announced a reduction in the dividend allowance from its current level of £5,000 to £2,000 with the change coming into effect in April 2018. Business owners that have structured their remuneration tax efficiently to take advantage of the dividend allowance may need to revisit their income strategy over the year leading up to the change. 
  • The tax-free personal allowance will increase to £11,500 on 6 April 2017.
  • The higher rate tax threshold increases to £45,000 (the equivalent threshold in Scotland is £43,000) from 6 April 2017.
  • Both the personal allowance and higher rate tax threshold increase had been announced previously and the government remains committed to delivering a personal allowance of £12,500 and a higher rate tax threshold of £50,000 by the end of the current parliament.

Capital Gains Tax (CGT)

  • No significant announcements other than a small increase in the annual exempt amount to £11,300 from 6 April 2017.

Inheritance Tax (IHT)

  • The residence nil rate band comes into effect on 6 April 2017. Initially set at £100,000 it will increase in annual £25,000 increments to £175,000 by 6 April 2020.
  • While the standard nil rate band will remain fixed at £325,000 up to and including the 2020/21 tax year.

Corporation Tax

  • The corporation tax rate will reduce to 19% from April 2017 with a further reduction to 17% planned for 2020.

Pensions

  • Money Purchase Annual Allowance (MPAA) – as announced in the Autumn Statement 2016 the level of MPAA will reduce from £10,000 to £4,000 from 6 April 2017. There are no changes to the way the MPAA operates, for example, any unused MPAA cannot be carried forward for later years.
  • Qualifying recognised overseas pension schemes (QROPS) – a transfer charge is being introduced for certain QROPS transfers with immediate effect.  Broadly, for transfers to QROPS requested on or after 9 March 2017, a 25% tax charge will apply unless, from the point of transfer, both the individual and the pension savings are:
    • in the same country, or
    • both are within the European Economic Area (EEA), or
    • the QROPS is provided by the individual’s employer.

The 25% tax charge will also apply if the individual moves to another country that does not fall within the exemption, within 5 years of the tax free transfer. Equally, if the individual moves and, as a consequence, then satisfies one of the exemptions within 5 years of a taxable transfer, the UK tax charge will be refunded.

UK tax rules will continue to apply to any payments made in the first 5 full tax years following the transfer, regardless of where the individual is resident.

  • Changes to tax treatment of foreign pensions - from 6 April 2017 legislation will apply to align more closely the treatment of foreign pensions with the UK’s domestic pension tax regime.
  • Master trust pension schemes - tax registration process - this is to be aligned with the Pensions Regulator’s new authorisation and supervision regime; the aim being to boost consumer protection and improve compliance. This will be introduced from October 2018.

ISAs

  • The ISA subscription allowance benefits from a sizeable increase to £20,000 from 6 April 2017.
  • While the Junior ISA/Child Trust Fund allowance sees a more modest increase to £4,128.
  • As a reminder the new Lifetime ISA becomes available on 6 April 2017 with subscriptions of up to £4,000 receiving a 25% government bonus. Any Lifetime ISA subscriptions count towards the overall ISA limit of £20,000.

National Insurance

  • The decision to abolish Class 2 NICs, which was communicated in 2016, was reaffirmed. Currently, Class 2 determines entitlement to benefits for the self-employed. From April 2018, Class 4 will become the replacement for determining entitlement to benefits.
  • The Chancellor swiftly followed this by announcing that Class 4 NICs for self-employed will be brought closer to the rate of employee NICs. The current self-employed NICs system of a flat rate of £2.80 a week plus 9% of profits at the main rate will be replaced by a single charge of 10% in 2018, which will rise to 11% in 2019.

Miscellaneous

  • A three-year NS&I Investment Bond was announced with an interest rate of 2.2%. The bond will be available to anyone age 16 or over for 12 months from April 2017 with the maximum investment being £3,000.
  • New legislation will ensure that promoters of tax avoidance schemes (POTAS) cannot circumvent the POTAS regime by re-organising their business by either sharing control of a promoting business, or putting a person or persons between themselves and the promoting business. This will ensure that HMRC can apply the POTAS regime as intended.
  • As announced at Autumn Statement 2016, the government will introduce a new penalty for a person who has enabled another person or business to use a tax avoidance arrangement that is later defeated by HMRC. This new regime reflects an extensive consultation and input from stakeholders. The government will also remove the defence of having relied on non-independent advice as taking ‘reasonable care’ when considering penalties for a person or business that uses such arrangements.
  • The government will shortly be rolling out Tax-Free Childcare for working families with children under 12, providing up to £2,000 a year for each child to help with childcare costs. From September 2017, the free childcare offer will double, from 15 to 30 hours a week for working families with 3 and 4 year olds in England.
  • A number of measures are being introduced on education such as:
    • A technical education programme for 16-19 year olds, known as T-levels from 2019-20, reducing the number of qualifications from 13000 to 15.
    • Further education maintenance loans, similar to university student loans, on technical education courses, from 2019-20. Loans will also be available to part time undergraduates and for doctoral study, from 2018-19.
    • The right to free transport for pupils to be extended subject to certain conditions, such as those receiving free school meals.
  • Meanwhile, a new 5G mobile technology hub is planned, with up to £16 million being invested in the first phase.
  • £1 billion will be provided in 2017/18 for adult social care services, to help relieve pressure on the NHS, with a further £1 billion over the following 2 years.
  • An additional £100 million will be provided in 2017/18 for capital investment in A&E departments, which will help fund the provision of on-site GP facilities.
  • To celebrate the centenary of voting rights being extended to women in 1918, the government will create a new £5 million fund for projects. 
  • A further £20 million will be made available to help tackle domestic violence and abuse.
  • Other than the usual increases on tobacco and alcohol, a new Minimum Excise Tax will be introduced on cigarettes, and the anticipated Soft Drinks Industry Levy.
  • No business losing small business rate relief will see their bill increase next year by more than £50 a month, and 90% of local pubs will have a £1,000 discount on their business rates bill. There will be a £300 million fund for local councils to offer discretionary relief for hard-hit cases.
  • Finally the government will provide £20 million to finance a D-Day landings memorial. The funding will come from LIBOR fines levied on the banking industry.

Inevitably, the impact of some of these changes will gradually become clearer and further details of changes will emerge as new information becomes available. 
 

If you have any questions, please get in touch with your financial adviser. If you don't have an adviser, get in touch, we'd be happy to help. 

Sanlam Investments and Pensions accepts no liability for any action taken or not taken by any individual or firm as a result of the contents of this material. Whilst we have made every effort to ensure the accuracy of this material we cannot accept responsibility for any consequences (financial or otherwise) arising from relying on it.

Investing involves risk and the value of investments and the income from them may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.