Philip Hammond’s first Autumn Statement didn’t contain any major tax or pensions changes that have any immediate impact for you. This means we can plan for the tax year end with confidence and clarity.
There was welcome news that pension tax relief remains untouched. It appears that now is still not the time for a major pensions shake up, but it could be the perfect time to maximise funding and secure higher rate tax relief.
This will be the last Autumn Statement. In future the Budget Day will switch from spring to autumn, with a toned down statement on the economy delivered each March. This will give welcome breathing space between the announcement of budget changes and their introduction.
The key points from today’s statement were:
Salary sacrifice remains a tax efficient choice for pension savers
There will be no changes to the funding of pensions via salary sacrifice. This is good news for pension savers.
Certain other employee benefits will no longer receive the tax and NI advantages of salary sacrifice from April 2017, meaning they’ll be in the same position as other workers who buy benefits out of their net pay. This will include exchanges for benefits such car purchases, parking, school fees, gym memberships, travel insurance and smart phones, although there will be some protection for existing arrangements until April 2018 (2021 for cars and school fees).
Salary sacrifice allows employees to boost their pension pots through savings in employer and employee NI following an agreed reduction in pay. A higher rate taxpayer could increase their pension contribution by up to 18% by reinvesting their savings in employer and employee NI.
2017/18 income tax rates and bands confirmed.
The increase in the personal allowance in 2017/18 is confirmed as £11,500 and the higher rate threshold will rise to £45,000. Increases are planned to £12,500 and £50,000 respectively by 2020. Different bands will apply in Scotland as a result of devolved powers.
Here’s a reminder of what we already knew was coming in 2017/18:
IHT residence nil rate band
From April you may be entitled to an extra £100k IHT nil rate band where the family home passes to direct descendants on death.
Lifetime ISA introduction
Under 40s will have a new savings option which can help them to get a foothold on the property. Up to £4,000 a year can be paid into the Lifetime ISA and receive a 25% Government Bonus. First time house buyers can access their fund tax free prior to age 60.
£20k ISA Allowance
The ISA savings allowance is set to receive an above inflation increase. Savers will be able to enjoy an additional £4,760 of tax free savings.
Corporation Tax cut
The rate of Corporation Tax will be cut from 20% to 19% from 1 April, with a further cut to 17% to follow in April 2020. Business owners may want to consider accelerated pension funding ahead of any rate cut to reduce profits which would otherwise by taxed at the higher rate.