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Introduction
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The Autumn Statement
2016 was made by the Chancellor of the Exchequer, Philip Hammond on Wednesday
23 November. The Autumn Statement in full is published on HM Treasury’s website
but a summary of the key points are as follows:
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Economy
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The Office for Budget
Responsibility (OBR) has forecast growth to slow and inflation to rise over the
next two years.
OBR forecasts growth
at 2.1% this year (higher than the previous forecast of 2%) but for it to slow down
to 1.4% next year (down from the previous forecast of 2.2%) and then recover to
1.7% in 2018, 2.1% in 2019 and 2020 and 2% in 2021. The OBR have also
highlighted that there is a higher than usual degree of uncertainty in these Forecasts
(due to the increased uncertainty surrounding Brexit).
Mr Hammond announced
that the Government will no longer seek to deliver a budget surplus in 2019/2020
given growth slowdown and that it will introduce three new fiscal rules:
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Returning
public finances to balance as soon as possible in the next Parliament
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Debt
as a proportion of GDP must be falling by the end of this Parliament
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A
cap on welfare spending monitored by the OBR
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Income Tax
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Income Tax Rates & Thresholds
The main rates of
income tax for the 2017/2018 tax year will remain at 20% for basic rate
taxpayers, 40% for higher rate taxpayers and 45% for additional rate tax
payers.
As originally
announced in the March 2016 Budget, from 6 April 2017 the personal allowance
will increase to £11,500 and the basic rate limit will increase to £33,500. The
threshold above which additional rate tax becomes payable will remain unchanged
at £150,000.
For individuals with
a full personal allowance this means that the 40% higher rate will apply to
income above £45,000.
The Chancellor also
reaffirmed the Government pledge to increase the personal allowance to £12,500
and the threshold above which people pay higher rate tax to £50,000 by the end
of this parliament.
Personal Savings Allowance
This will remain
unchanged at £1,000 for basic rate taxpayers and £500 for higher rate
taxpayers. There will continue to be no personal savings allowance for
additional rate taxpayers.
Dividend Allowance
This will also remain
unchanged at £5,000 in 2017/2018 with any dividends in excess of this allowance
continuing to be taxed at the following rates depending on which tax band they
fall in:
Basic rate - 7.5%
Higher rate - 32.5%
Additional rate -
38.1%
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National Insurance
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As recommended by the
Office of Tax Simplification (OTS), the National Insurance secondary (employer)
threshold and the National Insurance primary (employee) threshold will be
aligned from April 2017. This will mean that both employees and employers will
start paying National Insurance on weekly earnings above £157.
As originally
announced in the March 2016 Budget, Class 2 NICs for the self-employed will
also be abolished from April 2018. Following the abolition of Class 2 NICs, the
Autumn Statement confirms that the self-employed contributory benefit
entitlement will instead be accessed through the payment of Class 3 and Class 4
NICs.
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Capital Gains Tax
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Employee Shareholder Status (ESS)
The tax advantages
linked to shares awarded under ESS will be abolished for arrangements entered
into on, or after, 1 December 2016. The status itself will be closed to new
arrangements at the next legislative opportunity. This is in response to
evidence suggesting that the status is primarily being used for tax planning
instead of supporting a more flexible workforce.
Offshore Funds
UK taxpayers invested
in offshore reporting funds pay tax on their share of a fund’s reportable
income, and Capital Gains Tax (CGT) on any gain on disposal of their shares or
units. The Government will legislate to ensure that performance fees incurred
by such funds, and which are calculated by reference to any increase in the
funds value, are not deductible against reportable income from April 2017 and
instead reduce any tax payable on disposal gains. This equalises the tax
treatment between onshore and offshore funds.
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Inheritance Tax
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From April 2017,
Inheritance Tax will be charged on UK residential property when it is held
indirectly by a non-domiciled individual through an offshore structure (such as
a company or a trust). This closes a loophole that has been used by
non-domiciled individuals to avoid paying inheritance tax on their UK
residential property.
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Corporation Tax
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The chancellor has
reaffirmed the Government’s intention to reduce the rate of corporation tax to
17% by April 2020.
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Indirect Tax
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Insurance Premium Tax (IPT)
To fund commitments
made in the Autumn Statement, Insurance Premium Tax will rise from 10% to 12%
in June 2017. IPT is a tax on insurers and any impact on premiums to consumers depends
on insurers’ commercial decisions. However, as with previous increases (from 5%
to 10%), it is likely that the increase in IPT will be passed on to consumers
by way of higher premiums for insurance.
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Pensions
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Money Purchase Annual Allowance
The Money Purchase
Annual Allowance will be reduced from £10,000 to £4,000 from 6 April 2017. The
Government will consult on the detail in due course. This impacts the over 55’s
who are drawing benefits from their pensions.
Foreign Pensions
The tax treatment of
foreign pensions will be more closely aligned with the UK’s domestic pension
tax regime by bringing foreign pensions and lump sums fully into tax for UK
residents (to the same extent as domestic ones).
Ban On Cold Callers
A consultation before
Christmas will look at ways to tackle pension scams, including banning
businesses from cold calling someone about their pension. This includes
scammers targeting people who inadvertently ‘opt-in’ to receive third party
communications.
State Pension
Despite some pressure
to reform the ‘triple lock’ on the State Pension, the Government has pledged to
keep it. This pledge will see the state Pension rise each April (until 2020) at
a rate of inflation, average earnings or 2.5% (whichever the greater).
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Salary Sacrifice
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Following
consultation, the tax and employer National Insurance 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 swapping 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.
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Investments
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Individual Savings Accounts
From 6 April 2017,
the ISA subscription limit will increase from £15,240 to £20,000 and the Junior
ISA and Child Trust Fund limits will increase from £4,080 to £4,128.
As announced in the March
2016 Budget, the new Lifetime ISA will be available in April 2017. It will
provide those aged 18-40 with a new way to save for their retirement or to buy
their first home. Every £4 saved into the Lifetime ISA will receive a £1 top-up
from the Government.
NS&I
In order to support
savers, National Savings & Investments (NS&I) will offer a new
three-year Investment Bond with an indicative rate of 2.2% from spring 2017.
The bond will offer the flexibility to put away between £100 and £3,000.
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Property Investment
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The Government have announced
that letting agents will no longer be able to charge renters fees (for example
when they sign a new tenancy agreement) which will stop tenants being hit with
fees averaging £223 per tenancy. The Government will consult on this in due
course.
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Venture Capital Schemes
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In the Finance Bill
2017 the Government will amend the requirements for the tax-advantaged venture
capital schemes – the Enterprise Investment Scheme (EIS), the Seed Enterprise
Investment Scheme (SEIS) and Venture Capital Trusts (VCTs).
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Non-Domiciles
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As previously
announced, from April 2017 non-domiciled individuals will be deemed
UK-domiciled for tax purposes if they have been UK resident for 15 of the past
20 years or if they were born in the UK with a UK domicile of origin.
Non-domiciled individuals, who have a non-UK resident trust set up before they
become deemed-domiciled in the UK will not be taxed on income and gains arising
outside the UK that are retained in the trust.
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Tax Avoidance
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A new penalty will be
introduced for those helping someone else to use a tax avoidance scheme. Tax
avoiders are to be hit with significant bills when HMRC defeats their avoidance
scheme and this new penalty will ensure that those who help them will also face
the consequences.
Tax avoiders will
also not be able to claim as a defence against penalties that relying on
non-independent tax advice is taking reasonable care.
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National Living Wage
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Following the
recommendations of the independent Low Pay Commission, the Government will
increase the National Living Wage (NLW) for those aged 25 or over by 4.2% from
£7.20 to £7.50 from April 2017. It is estimated this will result in a pay
increase for over a million workers.
For younger workers,
the NLW will also be increased from 6 April 2017 as follows:
21 to
24 year olds: An increase from £6.95 to £7.05 per hour
18 to
20 year olds: An increase from £5.55 to £5.60 per hour
16 to
17 year olds: An increase from £4.00 to £4.05 per hour
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Other
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Fuel Duty
Fuel duty will remain
frozen for the seventh consecutive year, with planned rises for 2017 removed.
New Childcare Schemes
Working families will
be entitled to 30 hours of free childcare per week for all 3 and 4 year olds
from September 2017.
Future Autumn Statements To Be Abolished
The Autumn Statement is
to be abolished immediately and the 2017 Spring Budget will be the last.
Instead, the UK will have annual budgets from Autumn 2017 and from 2018 there
will be a Spring fiscal statement that responds to the latest OBR forecasts.
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