Relief as Chancellor resists pension changes

Finance expert Andrew Edwards assesses Philip Hammond’s Budget

Financial advisers and other retirement experts collectively breathed a sigh of relief as Philip Hammond managed to resist any temptation to tinker with the pension regime in his 2017 Autumn Budget.

Speaking in the House of Commons on Wednesday afternoon, the Chancellor of the Exchequer did not utter a single word on pensions. Such a hands-off approach is likely to be well received among the financial services sector. In addition, there were no significant tax changes in Wednesday’s Budget that will have any impact for you which means that plans for the tax year ahead can proceed with confidence and clarity.

This was the first Budget of the new Parliament and the first in its new permanent autumn home. This now provides welcome breathing space between the announcement of Budget changes and their introduction. So, it would seem that no news is good news for pension investors.

Some of the key points for clients in the 2018/19 tax year as a result of the Budget, and from measures already announced, are:

Pensions

The pension lifetime allowance will rise to £1,030,000 and reassuringly there are no changes to the pensions funding limits – i.e. the annual allowance remains at £40,000 and will not be tapered until adjusted income exceeds £150,000.

Income tax

The personal allowance and higher rate threshold will increase to £11,850 and £46,350. The income tax rates and bands which will apply to Scottish taxpayers will be announced in the Scottish Budget on 14 December. The dividend allowance will be cut to £2,000 as already announced. In particular, this will hit small and medium sized business owners who take their profits as a dividend. Employer pension contributions will become an even more attractive way of extracting profits from a business. There are no changes to any other income tax bands.

Capital gains tax

The capital gains tax allowance will increase by £400 to £11,700.

Inheritance tax

As expected, the IHT nil rate band will remain at £325,000 until April 2021 and the residence nil rate band will increase from £100,000 to £125,000. In total that will mean that, from April, couples can leave assets up to £900,000 to future generations free of IHT.

Trusts

There will be a consultation published in 2018 to consider the simplification and fairness of trust taxation.

ISAs

Annual ISA limits stay at £20,000 per person, with a range of different ISAs to choose from. Each has its own rules and limits and is designed for different purposes, whether that’s medium or long term investing, or saving for a house deposit.

State Pensions

The basic State Pension will increase in April 2018 by 3% as a result of the triple lock. This will mean an increase of £3.65 per week to £125.95 per week for the full basic State Pension. The new State Pension will also be increased by the triple lock, resulting in an increase of £4.80 per week to £164.35 per week for the full new State Pension. Additionally, the triple lock increase will also be reflected in an increase to the standard minimum guarantee level included in Pension Credit.

Stamp Duty Land Tax (not applicable in Scotland)

There will be no Stamp Duty Land Tax for first time buyers on properties valued at up to £300,000. Where the first time buyer purchases a property valued between £300,001 and £500,000, they won’t be taxed on the first £300,000 and will be subject to tax at 5% on the excess. Where the property is worth more than £500,000 they won’t receive any relief. These changes will apply to transactions on or after 22 November 2017, where the property will be their main residence.

Andrew Edwards is Client Services Manager at The Pension Drawdown Company