Autumn Statement 2016: Good and bad rabbits
You may be surprised that the Chancellor left higher rate tax relief on pension contributions alone. But Moneywise users will be relieved that the state pension triple lock will remain in place for the remainder of this parliament, ensuring that pensioners receive an annual increase in income equivalent to whichever is greatest - inflation, the increase in earnings, or 2.5%
According to our poll, this was top of your wish list for the Autumn statement.
However, many savers (and their advisers) will welcome a pretty uneventful Autumn Statement, having already been dealing this tax year with:
- a reduction in the pensions lifetime allowance to £1 million
- a new personal allowance for savings interest
- the prospect of the new Lifetime Isa being introduced in 2017.
The negatives included another hike in insurance premium tax, which is likely to be passed on to consumers.
Plus, Chancellor Philip Hammond’s raid on salary will hit many professionals who receive work-place perks. The tax and employer National Insurance advantages of salary sacrifice schemes will be removed from April 2017. This will mean that employees swapping salary for benefits will pay the same tax as the vast majority of individuals who buy them out of their post-tax income.
The main pensions bombshell was the announcement of a consultation on reducing the Money Purchase Annual Allowance, the amount retirement savers are able to pay into their pension once they have accessed their savings, from £10,000 to £4,000 next April.
Finally, a key statement from a pretty uneventful Autumn statement related to the scrapping of the Spring Budget. In Mr Hammond’s words: "So the spring Budget in a few months will be the final spring Budget. Starting in autumn 2017, Britain will have an autumn Budget, announcing tax changes well in advance of the start of the tax year. From 2018 there will be a Spring Statement, responding to the forecast from the OBR, but no major fiscal event."
A tax-efficient way of receiving staff benefits, where an employee agrees to forego a proportion of their salary for an equivalent contribution into their pension scheme or in exchange for company car, gym membership, childcare vouchers or private medical insurance. A salary sacrifice scheme is a matter of employment law, not tax law, and is often entered by an employee who is about to move into the higher 40% tax bracket.
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).