How might the Chancellor's announcements today affect you?.
The big picture
When the current Government came to power facing a fiscal mess its big bet was to cut spending (i.e. ‘make difficult decisions’ in tedious political speak) and hope that economic growth would be sufficient to raise tax revenues to the point it could balance the books.
Chancellor George Osborne had hoped to stop borrowing by 2015, but has now pushed back his guesstimate to 2019. The trouble to date has largely been a stagnant economy and while things have picked up slightly of late there is still a long, long way to go before it is once again firing on all cylinders.
As I said this time last year, the glue that continues to hold everything together is rock bottom interest rates. Despite spending cuts, homeowners who have held onto their jobs and have decent tracker/variable rate mortgages are generally sitting pretty comfortably. If that were to change, the economy could collapse like a pack of cards, which is why the Bank of England continues to be so reticent to raise interest rates.
Here’s a summary of the key announcements today:
Income Tax
Personal Allowance - will increase to £10,000 from 6 April 2014. Increased age allowances will remain frozen; as part of the Government's continued plan to scrap them.
Tax Bands - the basic rate tax band will fall from £32,010 to £31,865. So higher rate tax will kick in at £41,865 (for those born after 5 April 1948).
Transferrable Allowance – from April 2015 married couples and civil partners will be able to transfer £1,000 of their personal allowance to their spouse/partner – provided neither is a higher or top rate taxpayer.
Capital Gains Tax
Annual Allwoance - as previously announced will increase from £10,900 to £11,000 from April 2014 and to £11,100 from April 2015 (£5,000 and £5,500 respectively for most trusts).
Private Residence Relief - at present, if you sell a property that has been your main residence at some time but not when you sell it, you normally enjoy relief (from CGT) based on the proportion of time it was your main residence –including the last three years even if you weren’t living there during that time. The three years wuill reduce to 18 months from 6 April 2014.
Non-resident Property Owners - non-residents buying property in the UK will be subject to CGT on any future gains from April 2015.
Inheritance Tax
Unchanged nil rate band of £325,000. HMRC is developing a system that will allow online probate applications and inheritance tax account submissions.
Benefits
State pension – will rise by £2.95 to £113.10 per week (full basic) for 2014/15. However, the Government plans to bring forward the intended state pension retirement age of 68 to the mid 2030’s from 2046 and link this to average life expectancy. The bottom line is that the current state pension (including the imminent flat rate scheme) is unsustainable so don’t be surprised if the planned increases in retirement age are even more brutal over the next few decades.
Those already in receipt of the state pension or reaching state pension age before the introduction of the flat state pension will have the option to top up their pensions in 2015 – more details to be released nearer the time.
Child Benefit – will only increase by 1% next year.
Pensions
Lifetime Allowance - from April 2014 the cap on your pension fund(s) at retirement will fall from £1.5 million to £1.25 million. Amounts in excess of this are effectively taxed at 55%. If you might be affected consider applying for Fixed or Individual Protection 2014 before 6 April 2014.
Investments
ISA Allowance - confirmed as £11,880 for 2014/15, as expected (Junior ISAs £3,840).
Exchange Traded Funds – from April 2014 stamp duty on the purchase of UK domiciled exchange traded funds (ETFs) will be abolished. Almost all ETFs are currently domiciled offshore (e.g. Ireland/Luxembourg), so this change might prompt more onshore ETFs. Not a big deal, but positive nonetheless.
Save As You Earn (SAYE) - the amount that employees can save and apply towards the purchase of shares for 2014 to 15 will be increased from £250 to £500 per month.
Venture Capital Trusts – the Government will be changing rules allowing VCTs to be held in nominee accounts, which is good news if you like to hold all your investments via a platform or stockbroker. And from April 2014 investments that are conditionally linked in any way to a VCT share buy-back, or that have been made within 6 months of a disposal of shares in the same VCT, will not qualify for new tax relief. This will only affect a minority of VCT investors.
Social Impact Bonds - A new tax relief for investment in social enterprise will commence in April 2014, which may extend to Social Impact Bonds thereafter.
Transport
Fuel Duty - the proposed 2p per litre increase in fuel duty next September is cancelled. Welcome news, although a drop in the ocean compared to overall fuel price rises in recent years. Maybe the Government would do better to instead set a maximum fuel price based on prevailing oil prices, taxes and the pound dollar exchange rate - reducing the scope for fuel companies to take motorists for a ride.
Car Tax - discs will also be scrapped from October 2014 in favour of an electronic system.
Rail Fares - Regulated rail fare increases next year will be limited to RPI (not RPI + 1%).
Corporation Tax
As already announced, the main rate of corporation tax will fall to 21% from April 2014.
Tax avoidance/evasion
Stronger measures still to be implemented.
Verdict
Despite a lot of minor changes this was actually a pretty dull Autumn statement, but that’s probably no bad thing. Despite the obvious difficulties, cutting spending while keeping fingers crossed for economic growth is probably still more sensible that borrowing even larger amounts to spend in the hope it will kick start the economy. And, thankfully, obvious tax rises such as bringing CGT rates in line with income tax, capping overall ISA holdings and further capping pension tax benefits have not seen the light of day (so far at least).
Read this article at http://www.candidmoney.com/articles/278/autumn-statement-2013-summary
