Autumn Statement Reflections

1. PENSIONS

 

 

Annual Allowance

 

§  The standard annual allowance in 2016/2017 will be £40,000.

 

§  The money purchase annual allowance in 2016/2017 will be £10,000.

 

§  The annual allowance for high earners will be reduced to between £10,000 and £40,000.

 

 

Higher Earners Tapered Annual Allowance

 

§  The reduced annual allowance will affect those with both 'adjusted income' of more than £150,000 and 'net income' of more than £110,000.

 

§  ‘Adjusted income’ includes employer and employee pension contributions. ‘Net income’ excludes pension contributions, unless paid under a salary sacrifice agreement, set up on or after 9 July 2015. This is to prevent tax avoidance. Where adjusted income and net income exceed the respective thresholds, the taxpayer's annual allowance will be reduced by £1 for every £2 of adjusted income in excess of £150,000. The maximum reduction is £30,000, which would result in an annual allowance of £10,000. The level of adjusted income at which the maximum reduction in the annual allowance is reached, is £210,000.

 

§  All pension input periods will be aligned with the tax year from 2016/2017, with no option to vary the period. The Government will consider at a later date if this can be simplified further by removing pension input periods altogether. The alignment of pension input periods with the tax year will be achieved by ending all open periods on 8 July 2015. A further pension input period will then cover the period from 9 July 2015 to 5 April 2016. To ensure no tax charges arise against those who had fully funded their pensions in advance of the Budget, the total annual allowance for this tax year will be increased to £80,000, only £40,000 of which is available to cover pension input amounts paid after the Budget.

 

§  ‘Carry forward’ will be available as normal, but will be based on the tapered annual allowance rather than the standard annual allowance.

 

§  The money purchase annual allowance of £10,000 will still be available. However, taxpayers who are affected by both the money purchase annual allowance and the tapered annual allowance will retain the £10,000 money purchase annual allowance but will suffer a reduced annual allowance for funding non-money purchase schemes.

 

 

Lifetime Allowance (LTA)

 

§  The LTA will reduce to £1 million for 2016/2017 and 2017/2018. There will be a new round of transitional protection and the application process isn't expected to be available until July 2016.

 

§  The LTA will then be index-linked in line with the consumer prices index (CPI) from 2018/2019.

 

§  Those who want to apply for Individual Protection 2014 must do so online by 5 April 2017.

 

 

 

Tax Relief

 

§  Other than for higher earners as noted above, there's no change to the rate of tax relief for member contributions, which will continue to be based on the individual’s highest marginal rate.

 

 

Pension Tax Relief Reform

 

§  The Government is considering the responses to the consultation of the reform of pensions tax relief. It will publish its response in the 2016 Budget.

 

 

Extension of Freedom & Choice Agenda To Existing Annuitants

 

§  The ability to sell annuities in payment is being deferred for a year, from April 2016 to 2017. This is in line with industry calls for it to be introduced over a more sensible timescale. The Government will set out its plans for the secondary annuities market in December 2015.

 

 

Lump Sum Death Benefits

 

§  Lump sum death benefits paid following the death of a member aged 75 or over will change from being taxed at the flat rate of 45% to the beneficiary's marginal rate of income tax from 6 April 2016.

 

 

Salary Exchange

 

§  Whilst there were no changes to salary exchange the Government noted that these arrangements are becoming increasingly popular and so increasingly costly to the tax payer. The Government stated that it will actively monitor the growth of schemes and the impact on tax receipts.

 

 

Automatic Enrolment

 

§  There will be a six month delay in the scheduled increases in the minimum contributions rates for automatic enrolment. This will bring the increases in line with the tax year. The first increase will apply from 6 April 2018. The second increase will apply from 6 April 2019.

 

 

 

 

 

2. DIVIDENDS

 

§  From April 2016, the current 10% dividend tax credit will be abolished. It will be replaced with a new £5,000 a year dividend tax allowance.

 

§  The new rates of tax on dividend income above the allowance will be:

 

7.5% for basic rate taxpayers

 

32.5% for higher rate taxpayers

 

38.1% for additional rate taxpayers.

  

 

 

3. TAX

 

INCOME TAX

§  In 2016/2017 the income tax personal allowance will see another substantial increase of £400 to £11,000. A further increase to £11,200 was announced for 2017/2018.

 

§  The basic rate band increases to £32,000 for 2016/2017. Those entitled to the full standard personal allowance will pay 40% tax on income above £43,000. The threshold for higher rate income tax increases by £615 for 2016/2017.

 

§  The basic rate limit will increase to £32,400 for 2017/2018. Together with the planned increases in the personal allowance, this means the higher rate threshold will be £43,600 for 2017/2018. These are the next steps in the Chancellor's stated aim of increasing the higher rate threshold to £50,000.

 

 

CAPITAL GAINS TAX (CGT)

 

§  No changes were announced with individuals continuing to be entitled to an annual exempt amount of £11,100 for 2015/2016 and trustees to a maximum of £5,550.

 

§  The 18% and 28% rates of capital gains tax remain, as does the interaction with the amount of the taxpayer's unused basic rate income tax band (if any) to determine at which rate tax will be paid. The potential exists to reduce the rate at which a gain is charged to CGT by extending the basic rate income tax band by making a pension contribution.

 

 

INHERITANCE TAX (IHT) & TRUSTS

 

§  The Government aims to reduce the number of estates paying IHT by introducing an additional nil-rate band from April 2017. This will apply where the main residence passes on death to direct descendants such as children and grandchildren. This will be worth up to £100,000 in 2017/2018, £125,000 in 2018/2019, £150,000 in 2019/2020 and £175,000 in 2020/2021 with CPI indexation applying thereafter. As with the existing nil-rate band, any unused nil-rate band will be able to be claimed on the death of their surviving spouse or civil partner. Those with net estates worth more than £2 million will see the additional nil-rate band scaled back by £1 for every £2 over this threshold. Further guidance on the downsizing provisions was published in October 2015 with legislation on this aspect in Finance Bill 2016.

 

§  The IHT nil-rate band is currently frozen at £325,000 until 5 April 2018 and this will continue to apply until April 2021.

 

§  The Summer Finance Bill will include new legislation targeting IHT.

 

 

 

CORPORATION TAX

 

§  The corporation tax rate will be cut from 20% to 19% in 2017 and then to 18% in 2020.

 

§  For accounting periods starting on or after 1 April 2017, corporation tax payment dates will be brought forward for companies with annual taxable profits of £20 million or more. This threshold will be divided by the number of companies in a group. These companies will pay corporation tax in quarterly instalments in the third, sixth, ninth and twelfth months of their accounting period.

 

§  The permanent level of the Annual Investment Allowance (AIA) will increase from £25,000 to £200,000 for all qualifying investment in plant and machinery made on or after 1 January 2016.

 

 

NATIONAL INSURANCE

 

§  The £2,000 National Insurance employment allowance, which reduces the overall cost of employer National Insurance Contributions (NICs) for employers, will increase from £2,000 to £3,000 from April 2016. From the same date, companies where the sole employee is the director will no longer be able to claim this allowance.

 

§  The Government will actively monitor the growth in salary exchange (also known as salary sacrifice) schemes used to reduce the amount of employee and employer NICs.

 

 

 

 

4. TAX EFFICIENT INVESTMENTS

 

ISA

§  The ISA limits will remain unchanged for 2016/2017. The main ISA limit will remain at £15,240 and the limit for Junior ISAs and Child Trust Funds will be £4,080.

 

§  The ‘Help to Buy’ ISA will be available from 1 December 2015. This new product will enable first time buyers to save up to £200 per month towards a first home, with an initial one-off deposit of £1,000. The Government will boost savings by 25% up to a maximum of £3,000, which will be paid when a property is purchased.

 

§  New flexible ISA rules will be introduced from 6 April 2016. The rules will allow investors to pay withdrawals from a Cash ISA back in to the account before the end of the tax year, without reducing their subscription limit further. The change will also cover cash held in stocks and shares ISAs.

 

 

Personal Savings Allowance

 

§  From 6 April 2016, a tax-free savings allowance of £1,000 will be available to those with taxable income of less than £43,000 i.e. basic-rate payers and below. Higher rate taxpayers benefit from a £500 tax-free allowance. Those earning over £150,000 are not entitled to an allowance.

 

  

 

 

5. STATE BENEFITS, TAX CREDITS AND THE MINIMUM WAGE

 

 

Statement Pension

 

§  The basic State Pension increases in line with the triple lock by £3.35 to £119.30 a week for 2016/2017.

 

§  The Pension Credit Standard Minimum Guarantee increases by £4.40 to £155.60 a week for a single person and by £6.70 to £237.55 a week for couples for 2016/2017. The Savings Credit threshold will increase to £133.82 for a single pensioner, reducing the single rate of the Savings Credit maximum to £13.07. It will increase to £212.97 for couples, reducing the couple rate of the Savings Credit maximum to £14.75.

 

§  The new single tier State Pension for people who reach state pension age from April 2016 will start at £155.65 a week for those entitled to the full rate.

 

 

Welfare Reforms

 

§  The proposed cuts to tax credits have been withdrawn and the current system remains in place, although these 'in work' benefits will be gradually replaced as Universal Credit rolls out. The Universal Credit rollout schedule currently starts in 2016 with completion due by 2021.

 

§  From April 2016, payment of Housing Benefit and Pension Credit will stop for claimants who travel outside the UK for longer than 4 consecutive weeks.

 

 

National Minimum Wage

 

§  As previously announced, since 1st October 2015 the current rates shown below will increase to the rates shown in brackets:

 

£6.50 (£6.70) per hour - main rate for workers aged 21 and over.

£5.13 (£5.30) per hour - workers aged 18 to 20.

£3.79 (£3.87) per hour - workers aged under 18 and above school leaving age.

£2.73 (£3.30) per hour - apprentice rate for apprentices under 19 or 19+ and in the first year.

 

§  From April 2016, those aged 25 and over will benefit from an increased rate of £7.20 an hour, branded as the National Living Wage.

 

Disclaimer   Every care has been taken to ensure that this information is correct and in accordance with law and HM Revenue & Customs practice, which may change. However, independent confirmation should be obtained before acting or refraining from acting in reliance upon the information given. This information is based on announcements made in the July 2015 Budget and November 2015 Autumn Statement which may change before becoming law.  Disclaimer   Every care has been taken to ensure that this information is correct and in accordance with law and HM Revenue & Customs practice, which may change. However, independent confirmation should be obtained before acting or refraining from acting in reliance upon the information given. This information is based on announcements made in the July 2015 Budget and November 2015 Autumn Statement which may change before becoming law.