Punter Southall Financial Management
2018 Budget Special: commentary on the Chancellor’s Budget
No changes around issues of great client concern materialised in the Budget. Capital gains tax rates remained low;the ability to take a lump sum tax free from your pension was kept; higher rate tax relief on pension contributions is unchanged, as well as the reduced annual allowance of £10,000 for high earners; Business property relief exemptions were retained on qualifying AIM shares and new wealth taxes have not been established.
Anyone would think Mr. Hammond was trying to keep core Tory voters on side in the event of an election occurring and prior to any Brexit deal being agreed.
So to summarise the key points:
- The personal allowance and higher rate threshold will increase earlier than expected to £12,500 and £50,000 respectively from April 2019. The income tax rates and bands for Scottish taxpayers will be announced in Scottish Budget on 12 December. There are no other changes to income tax bands or allowances.
The pension lifetime allowance (LTA) will rise to £1,055,000 from April 2019. The standard AA remains at £40,000 reducing to £10,000 for high earners (over £150,000 per annum) and the money purchase AA (for those who have started to draw on their pensions) stays at £4,000.
The capital gains tax allowance will increase by £300 to £12,000 from April 2019.
Entrepreneurs’ relief will now only be granted after a holding period of two years.
Inheritance tax (IHT)
- The IHT nil rate band will remain frozen at £325,000 until April 2021 while the residence nil rate band will increase from £125,000 to £150,000 from April 2019, allowing some couples to leave up to £950,000 to future generations free of IHT. There are set rules to ensure an estate is credited with the residence nil rate band that should be checked for compliance.
- There will be a consultation to consider the simplification and fairness of trust taxation – this has to be welcomed as the current regime is overly complex and can put clients off from using them for the wealth control and protection benefits they bring.
- Annual ISA limits stay at £20,000 per adult person with the Children’s ISA allowance increasing to £4,368 from April 2019.
- Stamp duty extended for first time buyers of shared property up to a value of £500,000.
- A reduction in lettings relief and other reliefs related to the ownership of rental property, essentially increasing the capital gains tax payable on the sale of a second property that used to be your main residence.
- The Help to Buy scheme will come to an end in 2023, with new calculation formulae to what can be borrowed in the interim. One of the reasons cited is the greater range of high loan to value mortgages available – I’m not sure this is a good development, remembering that Northern Rock were the pioneers of the 110% loan-to-value mortgage!
- Index Linked National Savings certificates will now be linked to CPI rather than RPI, in line with RPI being dropped as the official measure of inflation.
- We at PSFM Ltd will also be adopting CPI as its inflation measurement when setting return expectations for the different levels of risk a client might wish to take.
- The Government will reduce its issuance of Index Linked GILTS, although the amounts involved are relatively meaningless now it is something to watch for the future.
- In what could prove an interesting future opportunity the Government is consulting on how pension funds might invest in ‘patient capital’ – long term investment typically in unquoted companies.
- Drink beer, as wine is now more expensive.
What does this all mean?
In short, not a lot. A continuance of our mantra to use all the allowances and tax priveliged savings options available to you to minimise the tax you pay, remains prudent. These marginal gains all add up, and it is these we will focus on in forthcoming review meetings.
Philip Hammond mentioned Brexit only once in his 80 minute speech as there aren’t many new things he can say until the likely shape of a deal is known. As the range of outcomes is so wide we share this view, other than in the interim we continue to ensure the fund manager(s) selected for our clients are preparing as best they can, and where sensible our clients have plenty of cash to cover any period of market instability that might ensue.
We are also thinking about the potential impact of a Corbyn-led government and what, if anything, could be done to prepare for the financial impact this might cause. But that will be the subject of a separate bulletin in the near future.
For further information on this, or any other Financial Planning matter, please refer to your usual contact at PSFM or be in touch with the Head of your nearest office: https://www.psfm.com/about-us/our-people/
Principal and Head of the Birmingham office