Autumn Statement Commentary

Delayed for a day and meteorologically speaking arguably more like Winter, It was an Autumn Statement defined more by the measures it did not introduce, than the changes it made.

The big news of the day was the announcement of plans to bring forward the planned increases in the state pension retirement age by around 10 years.

Under previous plans the state pension age was set to rise to 68 in 2046 and 69 in around 2056.

Osborne announced that these changes will now come in a decade earlier; meaning the state pension age could be 70 by the late 2050s, which would hit workers in their twenties today.

The most noticeable inaction was the government’s decision not to make any changes to the drawdown regime.

Following the 2013 Budget the government commissioned the Government Actuary’s Department to review the pensions drawdown table and the underlying assumptions it uses to make sure drawdown rates reflected annuity rates.

However, following the consultation it announced that no changes would be made, concluding they're fit for purpose.

So , onto the headings...

Pensions

This quiet autumn statement hopefully signals a welcome period of stability for the pension tax regime. This is precisely what is needed to help re-establish consumer confidence at this important time for pension savers as auto-enrolment beds-in.

Thankfully, despite the usual pre-statement rumours, there are no more changes to:

• pension lump sums;
• tax relief; or
• pension allowances.

As I seemingly always write, before ever one of these statements or a budget, somebody, somewhere is predicting, or perhaps fearing, that the government will take away higher rate tax relief, or would further reduce the pensions lifetime allowance or meddle more with the tax-free lump sum.

·         Unlike with drawdown, CTFs and Stamp Duty, the lack of action over pensions was probably greeted with a sigh of relief

Lifetime allowance

• It's confirmed. A new 'individual protection' available for those immediately impacted by next April's lifetime allowance cut, allowing them to lock-into a personal allowance of between £1.25M and £1.5M. This creates a welcome new safeguard for those with savings already above the new £1.25M allowance when it kicks-in next April. Expect full details in next week's Finance Bill.

State pensions

• Basic State Pension: The (full rate) Basic State Pension will increase to £113.10 from April 2014 in line with the triple-lock guarantee.
• State Pension Age: There will be a new approach to future reviews of State pension age, to reflect changes in life expectancy. The rises to 66, then 67, have been brought forward to 2020 and 2028 respectively. Expectations have also been set for further rises to 68 by 'the mid 2030s' then 69 by 'the late 2040s'.
• Topping-up State pension: Those reaching State pension age before the new single tier State pension starts in April 2016 will also have an option to pay extra (new Class 3A) voluntary National Insurance contributions to boost their Additional State Pension. Details of this new option, which will only be available for a limited period from October 2015, are awaited.

I posted a blog the day before the announcement on trusts and its seems that what was forecast has come to pass, albeit with a welcome dely.

IHT simplification for trusts

The Autumn Statement continued the government’s clampdown on tax avoidance most notably through its planned overhaul of inheritance tax by applying just one nil-rate band to multiple trusts held by an individual.

Currently an individual is able to create an unlimited number of trusts and more than one IHT nil rate band (£325,000) can be applied. This is generally known as ‘Rysaffe’ type planning.

Overall, I welcome the simplification of trusts. It is frustrating that the ‘Rysaffe’ type planning is going but it does make sense and is a fair move, in general, in my opinion.

There will be further consultation on the proposals announced earlier this year to split the IHT nil rate band for trusts between the number of trusts created by any individual. The outcome will be published in the Finance Bill 2014. Such a measure could (and in all likelihood will) put an end to 'Rysaffe' type trust planning. The simplification measures are expected to start from 2015.

IHT Online

A new 'online' service to support the administration of IHT is expected to be up and running from 2016. This should reduce the administrative burdens and may speed up probate for many (crosses fingers, but doesn’t hold breath…)

Despite Osborne’s crackdown on avoidance he balanced it with tax relief for businesses, exchange traded funds (EFTs), social investments and married couples.

Osborne followed up the boost he gave to traditional funds in this year’s Budget, when he scrapped stamp duty on funds, by doing the same thing for ETFs. Hardly a headline grabber, but every little helps.

There were also tax breaks for social impact investments and bonds

Personal allowance goes up – but more higher rate tax payers to come!

As previously announced the personal allowance will increase by £560 to £10,000 in 2014/15. This means there will be more tax-free income for many basic rate taxpayers. However, the basic rate band will contract from £32,010 to £31,865, meaning that some may become higher rate taxpayers for the first time.

Note: Those who make an individual pension contribution will increase their basic rate band, and could potentially take income out of higher rate tax again. Do contact us if you'd like to know more about this.

Pass the personal allowance

Non-taxpayers who are married or in a civil partnership can pass up to £1,000 of their personal allowance to their basic rate tax paying spouse/partner in 2015/16.  It will mean an extra £200 tax-free income for couples who can use it. Around 4 million families could benefit but its success will depend on how easy it is to claim.

ISA allowances increase – but silence on Child Trust Fund to JISA transfers

ISA allowances will be increased to £11,880 in 2014/15 (half of which can be saved in a cash ISA). The Junior ISA and Child Trust Fund limits will both be increased to £3,840. But mysteriously and conspicuous by its absence there is no news yet on whether it will be possible for the 4.1 million children with a Child Trust Fund to transfer to a JISA.

Again the government announced a consultation into the last Budget, the result of which was widely anticipated to be announced in the Autumn Statement.

Those, including me, hoping for CTFs to be unlocked were left disappointed by the government’s silence.

The transfer may still be announced in next year’s Budget

Big rises could encourage employees to invest tax-efficiently

The Share Incentive Plan limits will increase by £600 to £3,600 per year for free shares and by £300 to £1,800 per year for partnership shares.
Save As You Earn monthly payment limits double from £250 to £500.
These changes will take effect from April 2014.

These schemes can form a valuable part of a client's investment portfolio as they can offer potential income tax, capital gains tax and NIC benefits.

CGT and Private Residence Relief

Taxpayers can claim Private Residence Relief for any final period of ownership, even if they do not occupy the property as their main residence at the time of sale – as long as it has been their main home at some time.

The maximum will that can be claimed from next April will be cut by 50%, from the last 36 months of ownership to 18 months.

CGT – no escape for non-resident property owners

From April 2015, non-residents will not escape CGT on the sale of their UK residential property. The details will be consulted on prior to introduction.

A bit like the Rysaffe planning in the IHT section, if you use this it is going to be very annoying that it is going, but looking at it, on balance, it seems fair enough.

Currently no CGT tax is payable on these assets but the tax will take effect from April 2015.

The aim is to ‘ensure those with the most in society make a fair contribution’ and to balance the fact UK residents pay CGT, the government will launch a consultation on how best to introduce the charge and will publish its findings in early 2014.

VCT

The government also withdrew income tax relief that was previously enjoyed by those participating in share buy-backs in venture capital trusts (VCTs).

Investments linked to a share buy-back scheme where the seller of VCT shares re-invests them are entitled to a 30% tax relief on that investment.

However Osborne announced in the Autumn Statement that the tax break will be scrapped from April next year on investments conditionally linked to a VCT share buy-back in any way or investments made within six months of a disposal of shares in the same VCT.

Business

Osborne also announced the government was due to ‘ease the burden’ on businesses of all sizes by capping any future business rate increases at 2%.

The government also extended the business rate relief scheme from April 2014. Every business in premises with a rateable value of up to £50,000 will get a business rate discount worth £1,000.

Osborne also announced a ‘reoccupation relief’, which will halve business rates for businesses setting up in vacant shops on UK high streets

All in all, a Winter Announcement (there, I said it) that other than with IHT, means ‘keep calm and carry on’. With the IHT, nothing surprising, a shame that Rysaffe planning looks to be going, but delighted that consultation will continue so the sort of ‘unintended consequences’ that have happened with previous rushed IHT rule changes shouldn’t happen.