Autumn statement highlights
Once upon a time, the government’s Autumn Statement only dealt with the country’s economic position and strategies to improve it, and it was called the ‘Pre-Budget Report’.
Now it has become an intrinsic part of the overall Budget process which gives the government a chance to unveil some of its proposed tax changes within the context of the overall economic strategy.
Whilst there will always be new proposals made in the Spring, the Autumn Statement (made in the Winter!) contains information on many important tax proposals. And with the government (despite positive growth statistics) still under constant pressure to deal with the public sector deficit, the importance of taxation to the overall plan of ‘UKPlc’ cannot be under estimated.
Personal allowance and tax bands
As announced in Budget 2013, those born after 5 April 1948 will be entitled to a basic personal allowance of £10,000 for 2014/15.
The higher rate threshold will be £41,865 after taking account of the increased personal allowance (i.e a basic rate limit of £31,865 plus the £10,000 personal allowance).
Transferable income tax allowance
As previously announced, from April 2015, spouses and civil partners will be entitled to transfer £1,000 of their personal allowance to their spouse or civil partner provided the recipient is not subject to income tax at the higher or additional rate. This will mean that the receiving spouse/civil partner will benefit from a tax saving of £200 (i.e £1,000 x 20%).
A new working group will be established by the government to revise the model Gift Aid Declaration to make it easier to understand – in the hope that more charitable donations will be made.
National Insurance Contributions (NICs) and Benefits
From October 2015 a new Class 3A voluntary NIC contribution will be introduced. This is explained in more detail in the pensions section of this document.
From 6 April 2015 employers will no longer be required to pay Class 1 NICs on earnings paid up to the Upper Earnings Limit to any employee under the age of 21.
As previously announced, from April 2014 every business and charity will be entitled to an annual £2,000 Employment Allowance towards their employer NICs bill. The Allowance will be delivered through standard payroll software and HMRC’s Real Time Information System.
For 2014/15, there are no changes to the percentage rates of contribution for Class 1, Class 1A, Class 1B and Class 4 NICs but there are changes to all of the thresholds and limits.
The weekly rates for Class 2 and Class 3 NICs for 2014/15 are increased to £2.75 pw and £13.90 pw respectively. The married women’s reduced rate is maintained at 5.85%.
The Class 1 Upper Earnings Limit and the Class 4 Upper Profits Limit will be aligned for 2014/15 with the higher rate tax threshold of £41,865.
Child Benefit rates increase in 2014/15 to £20.50 for the first child, and to £13.55 for the second and each subsequent child.
Capital Gains Tax
As previously announced in the 2013 Budget, the annual exempt amount will increase from £10,900 to £11,000 for tax year 2014/15 and will increase to £11,100 for tax year 2015/16.
The revised annual exempt amounts for trustees will be £5,500 and £5,550 respectively – subject to a reduction to a minimum of £1,100 and £1,110 respectively where the same settlor has, broadly, created more than one trust.
Principal private residence relief
Property which has been an individual’s only or main residence at some time is exempt from capital gains tax for the final 36 months of ownership – known as the final period exemption. This rule applies regardless of whether they are occupying the property at the time of sale. From 6 April 2014 the final period exemption will be reduced from 36 months to 18 months.
Non-residents and UK residential property
As speculated, from April 2015 the Government will introduce capital gains tax on ‘future gains’ made by non-UK residents disposing of UK residential property. The change will be subject to consultation which will be published in early 2014.
Savings and Investments
Individual savings account (ISA) and Junior ISA (JISA)
The annual ISA subscription limit will be increased from £11,520 to £11,880 for tax year 2014/15, of which £5,940 can be invested in cash.
The annual subscription limit for the Junior ISA will increase from £3,720 to £3,840 for tax year 2014/15.
The government is also exploring whether to allow a wider range of retail bonds to be held within the stocks and shares element of an ISA wrapper by reducing the remaining term to maturity to below 5 years.
Child Trust Funds (CTFs)
The annual subscription limit for the Child Trust Fund will increase from £3,720 to £3,840 for 2014/15 – the start date for the year is the child’s birthday and the end date is the day before their next birthday. The Chancellor made no mention of the proposal to permit the transfer of an existing CTF to a JISA.
Venture Capital Trusts (VCTs)
From 6 April 2014 investments which are conditionally linked in any way to a VCT share buy-back, or that have been made within 6 months of a disposal of shares in the same VCT, will not qualify for new income tax relief.
It was also announced that the government will consult further on potential changes to the VCT rules to address the use of converted share premium accounts to return capital to investors where that return does not reflect profits on the VCT’s investments. The government will also change the VCT rules so that investors can subscribe for VCT shares via nominees to continue to facilitate the use of VCTs by different types of retail investor.
Exchange traded funds (ETFs)
From April 2014 stamp duty and Stamp Duty Reserve Tax (SDRT) on the purchase of shares in ETFs, that would currently apply if an ETF were domiciled in the UK, will be removed.
From 6 April 2014, the value of free shares that can be awarded to an employee under a share incentive plan (SIP) each year will increase from £3,000 to £3,600.
From 6 April 2014, under a SIP the maximum an employee can relinquish each year in return for partnership shares is £1,800 of their pay. This represents an increase over the current maximum of £1,500. The maximum of 10% of pay that ban be relinquished remains but with the increased limit of £1,800 applying.
Under a Save As You earn (SAYE) share option scheme the maximum monthly contribution to the scheme is increased from £250 to £500 with effect from 6 April 2014.
Following consultation, the Government is introducing three new tax reliefs aimed at encouraging indirect employee benefits as follows:-
From 6 April 2014, the disposal of shares, which give a controlling interest in a company, to an employee ownership trust will be relieved from CGT.
Subject to the satisfaction of certain conditions, the transfer of shares and other assets to employee ownership trusts from 6 April 2014 will be exempt from IHT.
From October 2014, bonus payments of up to £3,600 each year to employees will be exempt from income tax provided the employer company is indirectly employee-owned and controlled by an employee ownership trust.
Major pension announcements were made relating to the bringing forward of the increase in State Pension Age and the retention of the current drawdown tables. However, the overriding pension issues for most advisers are likely to be on planning for the reduction in the annual and lifetime allowances from 6 April 2014 and the ever increasing automatic enrolment market.
The main pension announcements in the Autumn Statement are as follows:
A new guiding principle that people should, on average, expect to spend one-third of their adult life in receipt of state pension, will underpin future reviews of State Pension Age (SPA). The Pensions Bill 2013 already makes provision for the increase in the SPA to 67 to be brought forward to between 2026 and 2028. Current legislation currently expects the SPA to be increased to 68 between 2044 and2046. Applying the new guiding principle the Government expects that the increase in SPA to 68 will now take effect from the mid 2030s, while a further increase to age 69 will apply from the late 2040s.
In the January 2013 White Paper on the new single-tier state pension, the Government had already indicated that SPA would be reviewed at least every 5 years, with the first review being in the next Parliament and with its results issued no later than 7 May 2017. These reviews will take account of the latest demographic data available at the time and be informed by an independently led report on wider factors.
DWP will be publishing further details of how this principle will work in practice.
The Government confirms that Individual Protection, will be introduced as a transitional protection option in conjunction with the reduction in the standard lifetime allowance to £1.25 million from 2014/15 tax year.
At the 2013 Budget the Government Actuary’s Department (GAD) were commissioned to review the drawdown tables to determine whether they were a reasonable match for annuity rates. It is now confirmed that following that review the Government will not be changing the basis on which the drawdown tables are formulated.
The Basic State Pension and the Additional State Pension will be exempt from the Government’s cap on welfare spending.
The Basic State pension from April 2014 will be increased by 2.7% in accordance with the triple lock (i.e. the higher of average earnings growth, CPI inflation and 2.5%). This is an increase of £2.95 per week in the Basic State Pension for a single person, bringing this up to £110.15 per week.
The standard minimum income guarantee in Pension Credit will be increased by £2.95 per week, while the Savings Credit threshold will be increased by 4.4%.
The Government will remove the Assessed Income Period in Pension Credit awards. This means that from April 2016 households on Pension Credit will now need to report all changes in their circumstances that will affect their benefit as they happen. Pensioners aged 75 and over who have an indefinite assessed income period in place will be exempt unless the assessed income period would end under current rules.
In October 2015 the Government will introduce a new class (3A) of voluntary NICs to allow pensioners who reach SPA before 6 April 2016 a time limited opportunity to top up their State Additional Pension entitlements. The details of the scheme will be set out closer to the time of implementation, with the price of the new class of National Insurance being set at a broadly actuarially fair rate. The Government will legislate for this scheme at the earliest available opportunity.
The Budget 2013 announced that payments of £5,000 would be made to people who bought With-Profits Annuities from Equitable Life before September 1992, with a further £5,000 going to those on Pension Credit. The Autumn Statement 2013 confirms that the bulk of these payments will be made through direct payment into policyholders’ bank accounts in December 2013.