There were no major rabbits pulled from hats today, although there were some welcome tax reductions for savers, workers and small businesses.

The biggest news for our clients is the introduction of a “Lifetime ISA” for those under 40 years old. A factsheet is available from the government here. It appears to contain many of the reforms the chancellor was planning to bring to pensions, but is instead being introduced as a complimentary system (for the time-being).

On first reading we believe this could be a fantastic flexible long-term savings plan for those making long-term retirement plans, although the devil is in the detail!

 

Economic Forecast (from the Office for Budget Responsibility)

  • World economy/trade forecast to be weaker
  • Monetary policy has further loosened around the world
  • UK Productivity growth revised down – 2% growth in 2016, 2.2% growth in 2017, 2.1% PA for next three years
  • This forecast to be the fastest-growing economy in developed world
  • This predicated on UK remaining in EU
  • 150,000 more jobs than forecast since Autumn
  • 90% of new jobs are skilled occupations
  • Real wages are forecast to grow ahead of inflation
  • Forecast 0.7% inflation this year, 0.6% inflation next year – target for CPI remains at 2.0%
  • Still on track for budget surplus, but debt-to-GDP is higher than target
  • Cuts of £3.5Bn needed before 2020 to meet targets

Personal Taxation

  • Public services will have a responsibility to ensure workers pay the right tax
  • Redundancy payments over £35,000 will be subject to employer NI from 2018
  • Insurance Premium Tax to be increased by 0.5% and proceeds used to pay for flood defences
  • CGT to be reduced to 20% for higher-rate taxpayers, 10% for basic rate taxpayers (property profits are to remain at old rates)
  • £11,500 personal allowance from April “next year”
  • From “April next year” higher rate tax threshold raised to £45,000

Pensions

  • No change to lump sum taxation
  • For those under 40 a “lifetime ISA” is being introduced in addition to current pension system – £4,000 PA limit, 20% tax relief, every year until you’re 50 – no taxation on withdrawal
  • Withdrawals can be made at any time subject to a charge of 5% and removal of tax relief
  • Possibly able to re-invest withdrawals within the same year
  • After the age of 60 all withdrawals are tax-free

Savings/Investments

  • From April 2017 ISA limit being increase to £20,000 for all

Property

  • Stamp duty reform for commercial property – zero rate band for £150,000, 2% band on next £100,000, 5% band above £250,000
  • Additional stamp duty for second properties will now affect large investors as well as small

Household bills

  • Beer and cider duty frozen

Business

  • Maximum profits that can be offset from previous losses is 50% for those earning over £500M profits
  • Corporation tax to be reduced to 17% by April 2020 (down from a planned 18%)
  • Action to force overseas businesses to pay VAT on products stored in UK
  • Micro-entrepeneurs selling online will get a tax-free allowance
  • Small business rate relief threshold to be £15,000 and permanent. Higher rate raising from £18,000 to £51,000.
  • Rate increases to be linked to CPI rather than RPI (effective reduction)
  • Cut in supplementary oil & gas tax from 20% to 10% in response to reduced revenues
  • Talks on devolution of corporation tax
  • Class 2 NI abolished for self employed

Motoring

  • Tolls on Severn crossings being halved
  • Fuel duty frozen again

Miscellaneous

  • More regional devolution, including more elected mayors throughout the country
  • Increases in flood defence budgets
  • Many infrastructure plans continuing (including HS3, proposed tunnel between Manchester and Sheffield, Crossrail 2)
  • LEAs to be abolished – all schools to be moved to academy status (“on course to be” by 2020)
  • Sugar levy on soft-drinks industry starting in 2 years time. Money raised to fund sports at primary schools and an hour of extra-curricular activities at 25% of secondary schools