Spring Budget 2017
The chancellor has delivered his Spring Budget. While this mostly confirmed measures previously publicised, there were some new announcements for reforms to social care funding and education, and a reiteration of the key themes following the Brexit vote.
This was the last Spring Budget and future Budgets will be held in the autumn, allowing changes to be announced well in advance of the start of the following tax year. From 2018 onwards there will be a Spring Statement, responding to the Office for Budget Responsibility forecast.
The government announced the following measures to reduce the tax differential between the employed, the self-employed and those working through a company.
The tax-free dividend allowance will be reduced from £5,000 to £2,000 from April 2018. The reduction recognises the increased ISA allowance, which will rise to £20,000 from this April, as well as further increases to the tax-free personal allowance.
The Budget announced that the main rate of Class 4 National Insurance contributions (NICs), paid by the self-employed, will increase from 9% to 10% in April 2018, and to 11% in April 2019. The chancellor confirmed the abolition of Class 2 NICs – a flat-rate charge on the self-employed – from April 2018. Taken together with the increase in Class 4 NICs, this means that self-employed individuals with profits above £16,250 will have to pay more NICs.
The government announced that transfers from a UK registered pension scheme to a qualifying recognised overseas pension scheme (QROPS) requested on or after 9 March 2017 will incur a 25% ‘overseas transfer charge’, unless at least one of the following applies:
- Both the individual and the QROPS are in the same country after the transfer.
- The QROPS is in one country in the EEA (a EU member state, Norway, Iceland or Liechtenstein) and the individual is resident in another EEA country after the transfer.
- The QROPS is an occupational pension scheme sponsored by the individual’s employer.
- The QROPS is an overseas public service pension scheme.
- The QROPS is a pension scheme established by an international organisation to provide benefits in respect of past service and the individual is employed by that international organisation.
The ‘overseas pension charge’ will also apply to transfers that were tax-free when they were made on or after 9 March 2017 if, within the ‘relevant period’ (five full tax years after the transfer), the condition which exempted it from the charge ceases to apply, by way of a change of residence or a further transfer to another QROPS that doesn’t qualify.
The 25% ‘overseas transfer charge’ will apply after any lifetime allowance charge deductions, with the ‘overseas pension charge’ (but not lifetime allowance charges) refunded if one of the above exemptions applies within the relevant period as described above.
The ‘overseas pension charge’ will also apply to transfers of pensions in payment, including beneficiaries’ pensions, if the exemptions to do not apply.
This change does not mean that transfers to QROPS are now inappropriate; however, more care will need to be taken to establish any additional tax charges on transfer or within the following five tax years.
Other pension/retirement planning issues
Following consultation, the government has confirmed that the money purchase annual allowance (MPAA) on tax-relievable contributions to money purchase, or defined contribution, schemes will be reducing from £10,000 to £4,000 from 6 April 2017. The MPAA applies to individuals who have taken benefits as an uncrystallised funds pension lump sum (UFPLS) or who have taken income from a flexi-access drawdown arrangement, including those converted from capped drawdown or who purchase a flexible annuity.
Income Tax personal allowances
As previously confirmed, from 6 April 2017 the Income Tax personal allowance will increase to £11,500 and the higher rate tax threshold will rise to £45,000, except in Scotland where it will remain at £43,000. The chancellor has reaffirmed the government’s commitment to raising the Income Tax personal allowance to £12,500, and the higher rate tax threshold to £50,000, by the end of this parliament. The 0% starting rate band for savings income will remain at £5,000 for the 2017/18 tax year.
ISA/Junior ISA limit
From 6 April 2017 the ISA limit will rise to £20,000 as previously announced. The Junior ISA limit will increase to £4,128. The government also confirmed that the Lifetime ISA will be introduced from 6 April this year, which will allow younger adults to save up to £4,000 each year and receive a government bonus of up to £1,000 a year on these contributions.
NS&I Investment Bond
The government also confirmed its launch of a new NS&I bond with a 2.2% gross interest rate over a three-year term, available for 12 months from April 2017. The bond will be open to everyone aged 16 or over, subject to a minimum investment limit of £100 and a maximum investment of £3,000.
Employer expenses and benefits in kind
The government confirmed that it is still considering how benefits in kind, accommodation benefits and employee expenses are valued for tax purposes.
Stamp Duty Land Tax
The government announced in the Autumn Statement 2015 that it will reduce the Stamp Duty Land Tax filing and payment window from 30 days to 14 days after the effective date of the transaction. As a result of consultation, the government will now delay the reduction in the filing and payment window until 2018/19.
As announced in the Autumn Statement 2016, the government will introduce a new penalty for a person who has enabled another person or business to use a tax-avoidance arrangement that is later defeated by HMRC.
The government confirmed its commitment to reduce the level of Corporation Tax to 17% by 2020.