What the Autumn Budget means for you
Chancellor of the Exchequer, Philip Hammond, delivered his Autumn Budget to Parliament on 22 November 2017. In addition to this, the Scottish Finance Secretary, Derek Mackay, also delivered his Draft Budget to the Scottish Parliament on 14 December 2017.
Here we highlight some of the key announcements that may impact you.
The Budget is the government’s main way of letting everyone know of any changes it plans to make to the economy.
This normally includes things that affect the amount of tax we pay either through our income, or indirectly through tax on goods and services.
The Budget will often include details of any limitations on how much you can pay into different investments and pensions, whilst still enjoying certain tax breaks.
The government often uses the Budget as a ‘spring board’ to announce its plans to make big changes in the years ahead.
Sometimes the government can decide to make changes immediately, or from some point in the future. For something to become law, all the details are published in a Bill which has to be agreed by Parliament and gain Royal Assent from the Queen - only then is it really in law.
This is important, because sometimes Parliament will reject any changes and it's back to the drawing board. It gets very political!
In the past we always had one Budget in the Spring with the main changes, and an Autumn Statement which included smaller changes. The problem with this was that it often resulted in too many changes during the year. It also meant that changes for the new tax year were only announced days before they would apply from. This didn’t give much time to consider changes.
So last year the government announced that it would have a Budget in the Autumn and in the Spring let the country know how the economy is doing. We are in a changeover year, and for this reason we have two Budgets in 2017.
The Scottish Parliament has statutory authority for its revenue and expenditure plans and will be setting their own Budget on 14 December 2017.
What was announced in the Scottish Budget
The Scottish Finance Secretary, Derek Mackay, announced changes to the rates of income tax in Scotland in his Draft Budget. The proposals for the tax year 2018/19 are:
- A new Starter Rate of 19% will be introduced for those earning between £11,850* and £13,850
- A Basic Rate of income tax at 20% for those earning over £13,850
- A new Intermediate Rate of 21% for those earning over £24,000
- A Higher Rate of 41% on incomes over £44,273 to £150,000**
- A Top Rate of 46% on incomes over £150,000**
* assumes individual receiving standard personal allowance
** those earning above £150,000 will see their standard personal allowance reduce by £1 for every £2 above £100,000
This means that more than two thirds of income taxpayers will pay less tax next year on their current income.
We'll update this section further once we know more on how this affects our customers who live in Scotland.
What was announced in the Autumn Budget?
Our job is to let you know of things that may affect any financial planning you’re doing. So we’ll stick with things on this subject.
Changes to the Lifetime Allowance confirmed
The Lifetime Allowance is the maximum amount of pension fund you can build over a lifetime and still benefit from tax relief.
It was first announced in 2015 that from April 2018, the Lifetime Allowance will increase in line with the Consumer Prices Index. This increase is 3% this year so the Lifetime Allowance will increase from £1,000,000 to £1,030,000 for the tax year 2018/19.
This means that you could accumulate more pension fund before incurring a tax charge, but you should speak to a financial adviser if you’re close to the limit.
Starting rate for Income Tax unchanged
There was no change to tax on savings. If you don’t earn enough to pay tax on your earnings, you don’t pay tax on the first £5,000 of savings income. On top of this, there’s also a personal savings allowance of £1,000 for basic rate tax payers and £500 for those on the higher rate – this is the amount you can earn in interest before paying any tax.
This means that if you do not earn enough to pay Income Tax, you’ll still be able to have up to £6,000 of interest on savings income, including interest on bank deposits, without paying tax on this savings income.
ISA and Child Trust Funds annual subscription limits
The amount you can pay into an Individual Savings Account (ISA) in the next tax year hasn’t changed.
The amount that can be invested in Junior ISAs and Child Trust Funds for the tax year 2018/19 will increase in line with inflation to £4,260.
You’ll be able to invest another £20,000 in a new ISA from the next tax year and this is on top of any current ISAs you hold. Increases in Junior ISAs and Child Trust Funds will allow you to save more money tax efficiently for children.
Gains made on UK property will be subject to UK tax
All profit made on the sale of UK property by non-UK residents will be subject to UK tax.
If you’re a non-UK resident and own property for investment purposes, you’ll need to speak to a financial adviser about tax on any sale.
State Pension and Pension Credit
Again the basic State Pension will be increased by the 'triple lock' in the 2018/19 tax year.
The triple lock was introduced in 2011 and guarantees that basic State pension will increase by at least the greater of 2.5%, any increase in the National Average Earnings and any increase in the Retail Price Index.
The rise in April 2018 will be 3%, which means a cash increase of £3.65 per week for the full basic State Pension.
If you are drawing the basic State Pension, you’ll see an inflationary increase in your payments.
Taxation of trusts
A trust is a legal arrangement where trustees (either one or more people or a company) decides how money or other assets are used for the benefit of one or more people, known as beneficiaries. The tax applied to money or assets which sit within a trust can get complicated. The government announced in this budget that it plans to make this simpler, fairer and more open.
It’s too early to say what this will mean, but it seems that the government plans to make trusts more straightforward.
For UK tax payers, the tax band for the basic rate of Income Tax, will rise from £11,500 to £11,850 from April 2018 and the higher rate band will rise from £45,000 to £46,350. The government has a stated aim of raising the Personal Allowance to £12,500 and the higher rate tax threshold to £50,000 by 2020.
There are no changes to the basic rate of income tax (20%), the higher rate (40%) or the additional rate (45%).
If you are a Scottish tax payer, the tax bands and tax rates may be different. The Scottish Parliament will be publishing its Budget in December.
The National Living Wage will be increased to £7.83 per hour from £7.44 in April 2018.
If you have income of more than £11,500, you’ll probably see a reduction in the amount of tax you pay. If you are receiving the National Living Wage, you’ll see your income increase.
The Marriage Allowance allows taxpayers to transfer up to 10% of their unused personal allowance to their partner, reducing their tax bill by up to £230 a year in the tax year 2017/18. There are conditions for claiming the Marriage Allowance – at least one partner will need to be a basic rate tax payer and the other a non-tax payer. Any claim may be backdated to include any tax year since 5 April 2015.
It will now be allowed to make a claim where a partner has died and may be backdated by up to 4 years.
Remaining partners may find this will increase the amount of their income which will not be subject to tax.
National Insurance (NICs) is applied at 13% on income up to the higher rate threshold, and 2% above. So the increase in the higher rate income tax threshold (to £46,350) may result in those currently earning more than £45,000 seeing more of their income charged at the higher rate.
The government’s initial plans to reform National Insurance and abolish Class 2 NICs and increase Class 4, have been put on ice.
If you are a higher earner you may see your take home income fall.
Where to get further information
You may wish to speak to a financial adviser about the topics covered in the Budget. Here are some useful sites for also finding more information.
Tax rules require careful consideration and may not reflect your individual circumstances. The above is based on our understanding of current taxation, legislation and HM Revenue & Customs practice, all of which is liable to change without notice. For more information please visit www.gov.uk/browse/tax.
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