Personal tax tweaks and more to come
Essentially, it was a fairly uneventful Statement for financial planning. However there were some details to be aware of.
There were no announcements on pension tax relief, although significant changes have already been announced for high earners which will see a significant reduction in the relief available from April 2016 for those earning more than £150,000.
In addition, the government has already launched a consultation on how the new pension tax relief system might operate.
Tax law and HMRC practice is always subject to change. A number of options are thought to be under consideration, including upfront tax relief on pensions being scrapped so they become more like ISAs, the introduction of a new 33% flat rate of tax relief, and creating a separate and less generous tax system for savers with final salary pensions.
Lifetime allowance is also part of the review and is an area the current Pensions Minister is looking to amend. We would strongly encourage individuals to consider pension contributions to ensure the highest rates of tax relief are enjoyed prior any potential reductions.
With regards to ISA investments there will be no increase to the current allowances. One point of interest for some will be the ability to invest in Crowdfunding via their ISAs. Note that it will only be debt instruments, not equity, which will initially be allowable. More information will be known in 2016.
Scheduled increases to the auto enrolment minimum contribution rates have been delayed by six months to April 2018.
Previously, the minimum employer contribution rate was set to rise to 2% in October 2017 to bring total minimum contributions to 5%. It was then due to rise to 3% for employers in October 2018 and total minimum contribution to 8%.
However, the new rules mean the first rise will be introduced in April 2018. The next rise will be introduced in April 2019. Moving these changes at the end of tax years should aid businesses to administer the changes. To date, more than five million people had been auto enrolled into pensions.
Salary Sacrifice has become commonplace which is now drawing the attention of the Chancellor and is going to be monitored and reviewed.
The government announced the removal of barriers to creating a secondary market for annuities. That being said, we will monitor this space with interest as it is highly unlikely that we will see any mainstream life and pension providers willing to compete in this marketplace due to concerns regarding clients’ health and longevity.
The flat-rate state pension will pay £155.65 week. In April 2016, a flat-rate state pension will replace the existing two-tier system. In his Autumn Statement speech Chancellor George Osborne announced the new single-tier system will pay a minimum of £155.65 a week.
The rate of the basic state pension from April 2016 was confirmed by the Chancellor to be £119.30 from April 2016. Individuals will need at least 10 ‘qualifying years’ of NICs to qualify for any state pension at all, and 35 qualifying years to receive the full entitlement.
Earlier in the year the government had stated its intention to review the use of Venture Capital Trusts (VCTs), Enterprise Investment Schemes (EIS) and Seed Enterprise Investment Schemes (SEIS), to invest in renewable energy projects. It has now been confirmed that energy generation projects will be excluded from such tax efficient investments.
Our message would be to not delay any planning that you are considering. There are significant changes on the horizon.
Craig Hendry is the Managing Director of Johnston Carmichael Wealth