In his first (and last) Spring Budget the Chancellor of the Exchequer, Philip Hammond provided no big surprises in his speech today, with a relatively low-key set of announcements aimed at preparing the UK for an uncertain future outside of the EU.
Whilst we didn’t believe there would be wholesale changes affecting pensions, we were once again glad to see little to report following a period of huge upheaval.
The headlines are (starting with pension related issues first):
Money Purchase Annual Allowance
Following Consultation, the Government is reducing the MPAA from £10,000 to £4,000 from 6th April 2017.
We feel that although this is a relatively minor change, it is one that the Chancellor could have avoided. For those affected, such as those still working who choose to reduce their working days and supplement any income shortfall through pensions, this will mean their ability to replenish funds will be diminished.
From 9th March 2017, transfers from UK Registered Pension Schemes to Qualifying Recognised Overseas Pension Schemes (QROPS) will be subject to a special 25% tax charge unless at least one of the following conditions apply:
There will also be other changes, detailed in the guidance notes.
The Government is considering the feedback from the consultation and will release a response later in the Spring.
Master Trust Tax Registration
The government will amend the tax registration process for master trust pension schemes to align with the Pensions Regulator’s new authorisation and supervision regime. This will help to boost consumer protection and improve compliance.
State Pension Age
There will be a review published by 7th May 2017 regarding the future of the State Pension Age.
The Government confirmed that the Lifetime ISA will launch on 6th April 2017.
There will be no change to what had already been announced in terms of income tax thresholds/allowances and rates.
From April 2017, the personal allowance will rise from £11,000 to £11,500 and the higher rate threshold will rise to £45,000. It was also confirmed there would be an increase in the personal allowance to £12,500 and the higher rate tax threshold to £50,000 by the end of this Parliament.
National Insurance Contributions (NICs) for the self-employed
As was already announced, the self-employed will see a change to their NIC liability, with Class 2 being abolished from April 2018.
For many years, the self-employed have paid much lower NICs than employed individuals; this was partly justified by lack of access to the full State Pension and other in-work benefits. However, the new State Pension now includes the self-employed, and so the Chancellor today announced that to level the playing field between the self-employed and employed, Class 4 NICs are to be increased by 1% in April 2018 (to 10%) and a further 1% in April 2019 (to 11%).
Business Rates changes in England
There will be £435 million to support businesses affected by the business rates relief revaluation, meaning no small business that is coming out of small business rates relief will pay more than £600 more in business rates this year than they did in 2016-17.
Included in the above figure, there will be funding for local authorities will allow them to provide £300 million of discretionary relief to provide help to businesses most affected by the revaluation. From April 2017, pubs with a rateable value up to £100,000 will be able to claim a £1,000 business rates discount for one year.
There will be no change to what has been previously announced; the rate of corporation tax will continue to be reduced in stages to 17% by 2020/21. These measures are likely to make the UK attractive from an investment and business point of view.
The tax free dividend allowance of £5,000 will reduce to £2,000 from April 2018, hurting not only directors of limited companies but any individual who receives dividend income.
Capital Gains Tax
No changes were announced.
The Chancellor revealed revised forecasts from the Office for Budget Responsibility (OBR), including:
Growth in GDP
Expectations are for positive growth in GDP reaching 2% in 2021, albeit with a different profile from that announced in the Autumn Statement:
The Budget Deficit now looks to be coming down faster than previously announced, particularly in the 2016/17 tax year. Whilst this is an unexpected windfall, the savings will be kept in reserve for the uncertainties of Brexit.
Borrowing is lower in every year of the forecast compared with Autumn Statement 2016 and expected to fall to £16.8 billion or 0.7% of GDP by 2021-22. This is forecast to be the lowest deficit as a share of GDP in two decades.
This was the last Spring Budget, the next Budget will be in Autumn 2017 and then yearly onwards. In future we will have Spring Statements which will primarily be to hear and respond to reports from the Office for Budget Responsibility (OBR).
Links to various documents:
Reduction in the Money Purchase Annual Allowance: https://www.gov.uk/government/publications/reducing-the-money-purchase-annual-allowance/reducing-the-money-purchase-annual-allowance
March 8th, 2017