Autumn Statement 2016 – Forecasts yes, but forewarning?

How the seasons change. Only 12 months ago, in the Autumn Statement and Spending Review of 2015, the forecasts suggested that public finances were set to improve and the extent of the planned spending cuts would be reduced.

But yet, as we’ve seen with recent popular forecasts and predictions (take Brexit and Trump’s US Presidency result for example), the reality is that they are just that – forecasts.

The new Chancellor, Philip Hammond, presented his first Autumn Statement with little in the way of major new tax or pension changes. The announcements made were focused on revised forecasts from the Office of Budget Responsibility (OBR) in light of a changing economic outlook, with our decision to leave the EU and continued global political uncertainty providing a platform for which the Government will now abandon its previous fiscal targets. The Government has therefore planned to significantly increase public borrowing to invest in infrastructure and innovation, aiming to improve the long-term productivity of our country.

The overall future aim is for the deficit to be less than 2% by the end of this Parliament, and a balanced budget as soon as possible thereafter. But putting forecasts aside for a moment, one thing we are certain on is that people are living longer with more complex health needs. Philip Hammond gave a subtle, yet powerful, hint about the “need to ensure we tackle the challenges of rising longevity and fiscal sustainability”. In other words, the forecast ahead is possibly gloomy on addressing the contentious issue of protecting the State Pension ‘triple lock’ and the NHS Budget. Or is that forewarning?

We have summarised some of the key announcements for you below:

 

Personal Tax

§ Income Tax – The personal allowance will increase to £11,500 from 6 April 2017 and the point at which the higher rate of income tax will apply will also increase to £45,000. By 2020, the personal allowance will increase to £12,500 and the higher rate threshold will rise to £50,000.

§ National Insurance – Employee and employer National Insurance thresholds are to be equalised at £157 per week from April 2017. This will not increase the costs for employees but it will for employers.

§ Salary Sacrifice – From April 2017 the Income Tax and National Insurance benefits of salary exchange schemes will be removed for some arrangements. 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. These changes will not affect arrangements in respect of pensions as well as advice, childcare, Cycle to Work and ultra-low emission cars.

§ Insurance Premium Tax – The tax added to insurance premiums will increase from 10% to 12% as from 1 June 2017.

§ National Living Wage – The National Living Wage for those aged 25 and over will increase from £7.20 per hour to £7.50 per hour.

§ Child Tax Credit – Any family which has a third or subsequent child born after April 2017 will not qualify for Child Tax Credit, which can be more than £2,000 per child. This will also apply to families claiming Universal Credit for the first time after April 2017.

§ Childcare – From September 2017, parents working more than 16 hours a week and earning less than £100,000 a year will be able to claim an additional 15 extra childcare hours.

Savings & Pensions

§ ‘Triple lock’ remains – The Government committed to retaining the triple lock ensuring that the State Pension will continue to rise each year by the highest of growth in average earnings, the Consumer Prices Index (CPI) or 2.5%.

§ Money Purchase Annual Allowance – Some individuals phase into their retirement by accessing their pension funds whilst reducing their working hours. However, many may also wish to continue funding their pensions, or might be continuing to benefit from employer contributions. The amount you can contribute into pensions once you have started to draw taxable pension benefits is called the Money Purchase Annual Allowance (MPAA) and was introduced as an anti-avoidance measure to tackle the recycling of pension income and subsequent double tax relief on pension contributions. The allowance is currently £10,000 but will reduce to £4,000 from 6 April 2017.

§ Pension scams and cold calling – 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 receiving third party communications.

§ NS&I Investment Bond – A new savings bond will be launched through National Savings and Investments, with an interest rate expected to be set at about 2.2%. The bond will be open to those aged 16 and over, subject to a minimum investment limit of £100 and a maximum investment limit of £3,000. Savers must put in their money for three years.

Business

§ Corporation Tax – The Government confirmed that the rate of Corporation Tax will be cut from 20% to 19% from 1 April, with a further cut to 17% to follow in April 2020.

§ Letting fees – Letting agents will no longer be able to charge renters fees, for example when they sign a new tenancy agreement. This will stop tenants being hit with fees averaging £223 per tenancy.

State of the economy

§ Government finances forecast to be £122bn worse off in the period until 2021 than forecast in March's Budget.

§ Debt will rise from 84.2% of GDP last year to 87.3% this year, peaking at 90.2% in 2017-18.

§ Public spending this year to be 40% of GDP - down from 45% in 2010, with Departmental spending plans set out in the 2015 Spending Review to remain in place.

This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice as at 23rd November 2016. These comments are based on announcements made in the 23rd November 2016 Autumn Statement, which may change before becoming law. You are recommended to seek competent professional advice before taking any action. Tax and Estate Planning Services are not regulated by the Financial Conduct Authority.

T: 01278 420705

E: enquiries@cfmuk.co.uk

Posted on November 25th 2016

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