The Budget held few surprises, with the changes announced focused on tackling the shortage of affordable homes in the UK and stimulating long term investment in skills, infrastructure and technology, as solutions to the UK’s low productivity. See 'Budget Helps Generation Rent' Article. After the eye catching Budgets of the previous Chancellor, Mr Hammond lived up to his “dull accountant” image but perhaps a period of little change is inevitable, while the terms of the UK’s exit from the EU remain unsettled.
Here is a summary of the main changes affecting UK savers and taxpayers from April 2018:-
- Income tax personal allowance will rise to £11,850 from £11,500.
- The higher rate threshold will increase to £46,350 from £45,000*.
- The top rate threshold remains unchanged at £150,000.
- The reduction in the personal allowance also continues to apply on incomes in excess of £100,000, so that earnings between £100,000 and £123,700 are effectively taxed at 60%,as the personal allowance is progressively withdrawn on a 1 to 2 ratio.
- There was no change to the rates of tax which remain at basic rate 20%, higher 40% and top rate 45%.
- No change to the savings income allowance of £5,000 which applies to savings income, where the other taxable income is below the personal allowance.
- The Savings allowance for all nil, basic and higher rate taxpayers, remains at £1,000 and £500 respectively, top rate payers nil. See Are You Owed or Do You Owe? Article.
- The tax free dividends allowance will reduce from £5,000 this year to £2,000 from April. See Shareholders Set To Receive Record Dividends Article.
- Pension Savings Allowances - annual savings allowances remain unaltered, £40,000 for most pension savers, restricted for higher earners to £10,000 and to those who have taken more than the tax free cash from their pensions on a flexible basis, to £4,000. See LEBC Laments The Money Purchase Annual Allowance Cut Article.
- Non-earners pension savings allowance remains at £3,600.
- The ability to carry forward 3 years unused allowances also remains, except for those who have taken more than the tax free cash from their pensions on a flexible basis.
- The Lifetime Allowance for pension savings will increase in April to £1,030,000 in line with inflation and will continue to increase each year.
- The Individual Savings Allowance (ISA) for over 18s will not be indexed linked as previously promised but will remain at £20,000.
- The Junior ISA for under 18s will be index linked and will rise to £4,260 from April.
- Certain Enterprise Investment Allowances were doubled while Venture Capital Trust rules, rates and allowances remain unchanged. The Government may introduce new incentives aimed at long term investments of pension scheme money in high tech innovative ventures.
- No change in the main rates of national insurance, employers pay 13.8%, employees 12% and self employed 9% of profits. However the flat rate of NI ( class 2) contributions payable by the self employed will be reinstated.
- Companies which have assets which create a gain on disposal, can currently offset the effects of inflation incorporated in the gain, this indexation relief will be frozen from January and is likely to impact landlords who hold buy to lets in a company.
- No change to the rules, rate or allowances for individuals. Gains allowances are on a use it or lose it basis, so reviewing gains and realising them within the allowances each year can save paying more tax later on. See Part 2 Making The Most of Independent Taxation Article.
- No change to the rules, rates or allowances. The additional main residence allowance which can be offset against the value of a UK residential property of the deceased, where it is left to a direct descendent, (child , grandchild) will increase from April to £125,000. It will not apply to estates in excess of £2,250,000 and will be tapered for estates over £2million on a 2 to 1 ratio.
- ISAs inherited by a spouse / civil partner are IHT exempt and can be retained in the tax exempt wrapper, so long as they are claimed within 3 years of the date of death. A technical change means that any income or growth occurring between date of death and completion of the administration of the estate, will also now be tax exempt.
As with all Budget speeches, the announced changes are only the icing on the cake and can often disguise more detailed proposals. We will continue to analyse these and the passage of the Finance Bill through Parliament and update our readers on their impact throughout the year.
Director of Public Policy, LEBC
Please remember, no news or research item is a recommendation or advice to buy. LEBC Group Ltd is not responsible for accuracy and may not share the author’s views. If you are unsure of the suitability of any investment or product for your circumstances please contact an adviser. The Financial Conduct Authority does not regulate tax planning. Tax rates and allowances may change in future.
*The threshold for higher rate (40%) tax in Scotland is determined by the Scottish Government and is currently £43,000.
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