Budget 2017 – what were the major announcements?
Budget 2017 – what were the major announcements?
Our financial planners and technical specialists have written a short summary of the major announcements from Philip Hammond’s Budget 2017.
This was a cautious Budget as Mr Hammond had spoken of the unexpected challenges that could lie ahead as Brexit negotiations get underway, while also expressing his confidence in a “stronger, fairer and more global” Britain. There was also a noticeable absence, on the whole, of further tinkering with pensions and other routes to long-term saving.
This was the last Spring Budget since the changes announced last year, with the first Autumn Budget occurring later in 2017.
As previously announced, in 2017/18 the personal allowance for England, Wales and Northern Ireland will increase to £11,500 and the higher-rate threshold will increase to £45,000.
Scottish rates are set by the Scottish Parliament. For 2017/18 the personal allowance will also be £11,500, but the higher-rate threshold will be lower than the rest of the UK at £43,000.
Capital Gains Tax
There were no changes announced in the Budget.
No new announcements were made in the Budget, but as a reminder, April will see the introduction of the Residence Nil Rate Band. This is an additional allowance of £100,000 (increasing progressively to £175,000 by April 2020) that can be used against the value of an individual’s residence if it is left to their children or grandchildren. The allowance will be reduced or eliminated for estates worth more than £2 million.
National Insurance (NI)
From April 2018 the main rate of Class 4 NI for the self-employed will increase from 9% to 10% and will increase further to 11% in 2019. As previously announced, Class 2 NI contributions will be abolished from 2018. These changes are aimed at reducing the disparity in tax between the self-employed and the employed.
The tax-free Dividend Allowance will be reduced from £5,000 to £2,000 in April 2018. This will bring more dividend receipts into taxable bands. Dividends above this level will be taxed at 7.5% (basic-rate), 32.5% (higher-rate), and 38.1% (additional-rate).
National Savings and Investments
The Budget confirmed the rate on the NS&I Investment Bond announced in the Autumn Statement 2016. The Investment Bond will offer a market-leading rate of 2.2% over a term of 3 years and will be available for 12 months from April 2017. The Bond will be open to everyone aged 16 and over, subject to a minimum investment of £100 and a maximum of £3,000.
The ISA annual allowance will increase to £20,000 in 2017/18 as previously announced.
The Lifetime ISA
The Lifetime ISA will go ahead as previously announced, offering those between the ages of 18 and 40 the opportunity to pay in up to £4,000 per year and obtain a 25% bonus from the Government. The £4,000 contribution will be included as part of the overall £20,000 ISA allowance. The ISA can be accessed for the purchase of a first property with a price up to £450,000, but otherwise cannot be used before age 60 without losing the Government bonus and interest plus a further 5% penalty.
Qualifying Recognised Overseas Pension Schemes (QROPS)
The Government is committed to tackling abuse of QROPS because the benefits from them can be paid as a lump sum when the UK tax rules no longer apply. In view of this, the Government has introduced an additional tax charge which will apply to all transfers to QROPS requested from 9 March 2017. The charge will be 25% of the transfer value (net of any lifetime allowance tax charge) unless:
- The QROPS and member are in the same country
- Both are in the European Economic Area
- The QROPS is provided by the individual’s employer
There is the ability to apply the tax charge to what would otherwise have been a tax-free transfer if, within five tax years, an individual becomes resident in another country (so that the exemptions would not have applied to the transfer.)
In addition, payments out of funds transferred to a QROPS on or after 6 April 2017 will be subject to UK tax rules for five tax years after the date of transfer, regardless of where the individual is resident.
The purpose of these measures is to target those individuals who are seeking to reduce their tax liability by moving their UK pension savings to an overseas jurisdiction. They aim to ensure that individuals only transfer their UK pensions to a QROPS if there is a genuine need to do this.
It is anticipated that QROPS will become significantly less appealing as a result of these changes.
Money Purchase Annual Allowance (MPAA)
The Government has confirmed that the MPAA will be reduced from £10,000 to £4,000 from 6 April 2017. Individuals are subject to the MPAA if they have taken income from their pension (aside from their tax-free cash) from 6 April 2015.
Pension tax relief
The current pension tax relief framework remains unchanged.
An economic overview
Ben Seager-Scott, Director of Investment Strategy & Research has written an economic overview of the Budget and what it could mean for investors.
This article was previously published on Tilney prior to the launch of Evelyn Partners.