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Autumn Statement 2016 Summary

Introduction

 
Just five days after one Hammond and May pairing roared back into our lives with a bang (and a considerably increased budget), another, slightly less explosive Hammond and May duo are back with… well not a lot actually, as the new Chancellor delivered his first - and so it seems, last Autumn Statement.  But don’t worry, after the next Budget in spring 2017, we’ll be switching to a 2017 Autumn Budget followed by a 2018 Spring Statement with the pattern then repeating each subsequent autumn and spring. Dizzying.
 
Salary Sacrifice restrictions, affordable housing, and an acknowledgment that we are no longer headed for a surplus by 2020.  With a very different style to his predecessor, Philip Hammond’s statement seemed to be humour heavy and despite a couple of tweaks that some had already predicted - ‘no new ideas’ to quote Shadow Chancellor John McDonnell. 
 
This document sets out the main changes to tax rates and allowances for individuals, companies and trustees. It also aims to identify other notable changes which may be of interest to advisers.

Income Tax

  • Personal allowance will increase to £11,500 in 2017/18.
  • Higher rate tax threshold will rise to £45,000 in 2017/18.
  • Income tax rates, 0% starting rate on savings income up to £5,000, and additional rate threshold all remain unchanged for 2017/18.
  • The government remains committed to delivering a personal allowance of £12,500 and higher rate tax threshold of £50,000 by the end of the current parliament.

Capital Gains Tax (CGT)

  • There was no mention of any change to either the rates of CGT or the annual exempt amount. We expect any uplift in the annual exempt amount to be announced in spring 2017.

Inheritance Tax (IHT)

  • We already know that the nil rate band is frozen at £325,000 until April 2021 and that the residence nil rate band being introduced for 2017/18 will start at £100,000, rising in equal instalments to reach £175,000 in 2020/21.
  • From Royal Assent of the Finance Bill 2017/18, IHT relief for donations to political parties will be extended to parties with representatives in the devolved legislatures, as well as parties that have acquired representatives through by-elections. This will ensure consistent and fair treatment for all national political parties with elected representatives.

Corporation Tax

  • The intention to reduce the rate of corporation tax to 17% by 2020 has been reaffirmed.
  • The government is considering bringing all non-resident companies receiving taxable income from the UK into the corporation tax regime. At Budget 2017, the government will consult on the case and options for implementing this change. The government wants to deliver equal tax treatment to ensure that all companies are subject to the rules which apply generally for the purposes of corporation tax.

Pensions

  • Pension scams – a consultation will soon be published on options to tackle pension scams, including banning cold calling, giving firms greater powers to block suspicious transfers and making it harder for scammers to abuse rules that apply to SSASs.
  • Salary sacrifice – pension contributions can continue to be made via salary sacrifice arrangements but this had already been confirmed as part of the consultation process in August 2016. Whilst some restrictions have been announced – see “Miscellaneous” section below - contributions paid to pensions via this method have survived, which is good news.
  • Money Purchase Annual Allowance (MPAA) – plan is to reduce this to £4000 from April 2017.  By way of background, once a person has accessed pension savings flexibly, if they wish to make any further contributions to a defined contribution (DC) pension, tax-relieved contributions are restricted to a special MPAA. A consultation has been published alongside the Autumn Statement seeking views on the proposal to reduce it to £4000. (Note that just taking a tax free cash sum doesn’t trigger the MPAA.)  .
  • Foreign pensions – The tax treatment of foreign pensions will be more closely aligned with the UK’s domestic pension tax regime. The government will also close specialist pension schemes for those employed abroad (“section 615” schemes) to new saving, extend the taxing rights over recently emigrated non-UK residents’ foreign lump sum payments from funds that have had UK tax relief from 5 to 10 years, align the tax treatment of funds transferred between registered pension schemes, and update the eligibility criteria for foreign schemes to qualify as overseas pensions schemes for tax purposes.

ISAs

  • The 2017/18 annual subscription limit for ISAs will rise to £20,000 as announced at Budget 2016.
  • Junior ISAs and Child Trust Funds annual subscription limits will see a CPI linked rise to £4,128 in 2017/18.

National Insurance

  • The National Insurance secondary (employer) threshold and the National Insurance primary (employee) threshold will be aligned from April 2017, meaning that both employees and employers will start paying National Insurance on weekly earnings above £157. This should simplify the payment of National Insurance for employers.
  • As announced at Budget 2016, Class 2 NICs will be abolished from April 2018, simplifying National Insurance for the self-employed. The Autumn Statement confirms that, following the abolition of Class 2 NICs, self-employed contributory benefit entitlement will be accessed through Class 3 and Class 4 NICs.

Benefits and minimum wage

  • National Living Wage is to rise 4.2% from £7.20 to £7.50 per hour, which is a pre-tax increase of £10.50 per week for someone working a 35 hour week.  
  • The government has also committed to investing £4.3m per year in order to strengthen enforcement of the National Minimum Wage, which is also increasing from £6.95 to £7.05 per hour for 21-24 year olds.  These changes take effect from April 2017.
  • Under Universal Credit, as a person’s income increases, their benefit payments are gradually reduced. A taper rate calculates the reduction in benefits as a person’s salary increases. Currently, for every £1 earned after tax above an income threshold, a person receiving Universal Credit has their benefit award reduced by 65p and keeps 35p. They will now keep 37p for every £1, from April 2017.

Investment bonds and life policies

  • Further to the Budget 2016 announcement and following consultation, the government will legislate in Finance Bill 2017 regarding the disproportionate tax charges that arise in certain circumstances from life insurance policy part-surrenders and part-assignments. This will allow applications to be made to HM Revenue and Customs (HMRC) to have the charge recalculated on a just and reasonable basis. While the government confirmed this will lead to fairer outcomes for policyholders we do await details of the changes. The changes will take effect from 6 April 2017.
  • As announced at Budget 2016 and following consultation, the government will legislate in Finance Bill 2017 to create a power to amend by regulations the list of assets that life insurance policyholders can invest in without triggering tax anti-avoidance rules. The changes, which again we await details of, will take effect on Royal Assent of Finance Bill 2017.

Miscellaneous

  • NS&I Investment Bond – new 3 year savings bond to be launched to help savers who have struggled with low interest rates.  The indicative rate is 2.2% but this is subject to change.  Savers aged 16+ will be able to invest between £100 and £3,000 and the bond will be available for 12 months from Spring 2017. 
  • Salary sacrifice - following consultation (back in August 2016), the tax and employer NI advantages of salary sacrifice schemes will be removed from April 2017, except for arrangements relating to pensions (including advice), childcare, Cycle to Work and ultra-low emission cars. This will mean that employees exchanging salary for benefits will pay the same tax as the vast majority of individuals who buy them out of their post-tax income. Arrangements in place before April 2017 will be protected until April 2018; and arrangements for cars, accommodation and school fees will be protected until April 2021. 
  • Insurance Premium Tax (IPT) will increase from 10% to 12% from 1 June 2017. IPT is a tax on insurers and it is up to them whether and how to pass on costs to customers. 
  • A ban on Letting Agent fees for tenants.  This is intended to improve competition in the rental market and make fees for renters more transparent.  There will be a consultation on this from the Department for Communities and Local Government (DCLG) before it is written into legislation. 
  • National Productivity Investment Fund – this is aimed to increase productivity and focuses on 4 key critical areas: housing, transport, digital communications, and research & development.  It aims to provide £23 billion of spending between 2017/18 and 2021/22.
  • Tampon tax – £3 million will be awarded from the controversial Tampon Tax.  This will be passed to Comic Relief to distribute between a range of womens’ charities, including those that tackle violence against women and girls. 
  • Flood defence – after a particularly wet week with flooding in many parts of the UK, the government will invest £170 million in flood defence and resilience measures.  £100 million of this will be spent on improving the resilience of roads to flooding.
  • £102 million of LIBOR fines are to be donated to Armed Forces and Emergency Services charities and other related good causes.  

Inevitably, the impact of some of these changes will gradually become clearer and further details of changes will emerge as new information becomes available. In the meantime if you have any questions regarding any of the above, please email technical@sanlam.co.uk

This note is for use by Financial Advisers only. It is not intended for onward transmission to a private customer and should not be relied upon by any other person. 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.