The Autumn Statement was a late addition to the main announcement scheduled for 25 November; the outcome of the latest five year spending review covering £4,000bn of government expenditure. Although the planned reforms received little attention when announced back in July, they represented just over half of the £9.075bn additional net income the Exchequer was projecting for 2016/17.
Pensions
Until a few weeks ago, it had been expected that the Autumn Statement would reveal Mr Osborne’s future plans for pension tax relief, following a consultation paper issued in July. In October the Chancellor revealed that a final decision would have to await the next Budget. Meanwhile two changes introduced by the July Budget are due to take effect next April:
- A further reduction in the lifetime allowance from £1.25m to £1m, with the introduction of two new transitional reliefs.
- The tapering of the annual allowance for those with high incomes.
The Chancellor executed a subtle cut to the cost of pension tax relief for the government by pushing back six months the dates on which auto-enrolment contributions will increase. The rise from 2% to 5% total contributions will now occur in April 2018, with the final move to 8% a year later.
The latest cuts to the Annual Allowance and Lifetime Allowance mean that as the tax year end nears, reviewing pension contributions should be one of your priorities.
Income Tax
In his July Budget, the Chancellor announced that the personal allowance would rise by £400 in 2016/17 to £11,000, a £200 increase over the amount he announced in March. The Autumn Statement left the allowance unchanged, as was the basic rate band at £32,000. The starting rate band for savings remains at £5,000. The higher rate threshold for 2016/17 will therefore be £43,000, some way off the Chancellor’s 2020/21 goal of £50,000 and still £875 below the level of 2009/10.
Mr Osborne potentially had two other previously announced tax changes due from 6 April 2016 to talk about:
- The personal savings allowance, worth a tax saving on interest of up to £200 for basic and higher rate taxpayers, but nothing for additional rate taxpayers. The continuation of low interest rates will limit the number who gain the maximum benefit.
- The £5,000 dividend allowance, accompanied by new (higher) tax rates on dividend income above that level. While most taxpayers will gain from this change, the impact on the minority – such a private company directors – could add about £2bn a year to Exchequer’s income in the medium term.
Both the £100,000 threshold for phasing out the personal allowance and the £150,000 starting point for additional rate tax remain the same for 2016/17. The overall tax burden is little changed: the greatest gain is for higher rate taxpayers with total income of up to £121,200 (the level at which all personal allowance is lost in 2015/16).
Income Tax Changes
| Total Income£ | 2015/16£ | 2016/17£ | Tax Saving£ |
| Less than 10,600 | 0 | 0 | 0 |
| 15,000 | 880 | 800 | +80 |
| 20,000 | 1,880 | 1,800 | +80 |
| 30,000 | 3,880 | 3,800 | +80 |
| 40,000 | 5,880 | 5,800 | +80 |
| 50,000 | 9,403 | 9,200 | +203 |
| 75,000 | 19,403 | 19,200 | +203 |
| 100,000 | 29,403 | 29,200 | +203 |
| 125,000 | 43,643 | 43,600 | +43 |
| 150,000 | 53,643 | 53,600 | +43 |
| 200,000 | 76,143 | 76,100 | +43 |
Note: Assumes all income taxed as earned income and individual is aged under 78 by 5/4/2017 with personal allowance only and no child benefit tax charge.
The phasing out of age-related personal allowances that started in 2013/14 means the personal age allowance disappears completely in 2016/17. The married couple’s allowance (which is only available if you or your partner were born before 6 April 1935) will be unchanged at £8,355 (minimum £3,220) because it is now linked to the CPI. The transferable tax allowance for married couples and civil partners rises to £1,100.
On the company car tax front, somewhat predictably Mr Osborne stopped what would have been the abolition of the 3% diesel surcharge, due from next April. This has now been rescheduled to disappear from 2021/22, bringing in about £275m a year in extra revenue.
If you want to minimise your tax now rather than wait for the £50,000 higher rate threshold, check that you are making use of today’s allowances and bands and are prepared for next tax year’s changes to the tax treatment of dividends and interest income.
Tax Credits
In July the Chancellor had announced plans to raise over £4.5bn by tax credit reductions, due to take effect from 2016/17. However, the House of Lords rejected his proposals in October. He was widely expected to water down his summer cuts, but he abandoned nearly all of the measures, leaving the main taper rate and income thresholds unchanged.
National Insurance
The 2016/17 National Insurance Contribution (NIC) thresholds will generally stay unchanged in the absence of inflation, with the exception of the upper earnings/profits limit which rises to £43,000 in line with the higher rate threshold. There is no change in the main employer and employee rates for 2016/17, both of which were protected by the ‘tax triple lock’ announced before the election. However, this pledge will not apply to self-employed NIC rates.
Class 2 contributions (currently £2.80 a week and, in 2015/16, collected via self-assessment) will ultimately disappear, but survive unaltered into 2016/17. The Class 3 voluntary rate also remains unchanged, despite the introduction of the single tier pension from next April.
In 2016/17 an employee working 30 hours a week at the new national living wage (£7.20 per hour) will pay £381 in NICs (and £46 in income tax). With the combined rate of employer’s and employee’s NICs up to 25.8% of your earnings at the margin, salary sacrifice arrangements continue to be an attractive option for taxpayers and even some non-taxpayers.
Individual Savings Accounts
For 2016/17 the ISA investment limit will remain unchanged at £15,240, with the Junior ISA (JISA) and Child Trust Fund limits also unchanged at £4,080.
From next April new rules will allow you to replace cash you have withdrawn from your account earlier in a tax year, without this replacement counting towards that year’s annual ISA limit. In practice the role of cash ISAs is expected to diminish from 2016/17 because of the new personal savings allowance, which will allow many people to obtain tax-fee interest without the use of an ISA.
The list of qualifying investments for the new Innovative Finance ISA (providing investment in peer-to-peer lending) will be extended in Autumn 2016 to include debt securities offered via crowdfunding platforms. The government will also continue to consider extending this type of ISA to include equity crowdfunding.
There will be a consultation on legislation to extend ISA tax benefits to the period of estate administration – at present normal tax rules apply between the date of death and transfer to the surviving spouse/civil partner.
Business Taxes
The main rate of corporation tax is currently 20% and will fall to 19% from April 2017.
For those running their own business the low corporate tax rates (compared with the higher and additional rates of income tax) can make trading through a company an appealing option. However, the decision has been complicated for 2016/17 by the new tax rules for dividends, on which more information is still awaited. The best choice for any particular business depends on the facts and it is important to take more than just tax into account when deciding on the appropriate trading vehicle.
The Chancellor once again extended the small business rate relief for a year. The reform of business rates was set in train a year ago, with the announcement of a review due to report by the time of the 2016 Budget. However, any changes will be ‘fiscally neutral”, so winners will be matched by losers. For the longer term, the Chancellor announced that councils will receive the full benefit of business rates at the price of losing their main local government grant and gaining more expenditure responsibilities.
Apprenticeship Levy
The levy was announced in the summer Budget, but it was not until the Autumn Statement that the rate was revealed. From April 2017 it will be 0.5% of an employer’s payroll, with an offsetting allowance of £15,000. As a result, only employers with a payroll exceeding £3m will pay any levy – 98% of employers will pay nothing. Even so, the levy will raise £2.8bn in 2017/18, rising to nearly £3.1bn by 2020/21. The new levy is already being criticised in some quarters as tantamount to an increase in National Insurance contributions for large employers.
The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax and trust advice. This newsletter is provided strictly for general consideration only and is based on our understanding of law and HM Revenue & Customs practice as at November 2015 and the Treasury and HMRC documents published alongside the Autumn Statement. The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.