The Autumn Statement: our summary
Today the Chancellor, Philip Hammond, delivered his first (and last) Autumn Statement.
Announcements regarding savings, pensions and investments were thin on the ground. But it is worth remembering that significant changes have already been made or announced this year regarding:
- the taxation of bank interest
- share dividends taxation, and:
- capital gains tax
More on these later – but we’ll start with today’s ‘new news’...
Annual limits on pension contribution for those already drawing their pension (using the new pension freedoms options) – from April 2017
Pension savers who, after age 55, have flexibly accessed the taxable bit of their pension savings – that is, more than just their tax-free lump sum – are currently restricted to paying in new pension contributions of £10,000 a year before additional tax charges apply. This limit doesn’t apply to those with ‘capped drawdown’, which was available up until 5 April 2015.
- This limit, known as the Money Purchase Annual Allowance, will reduce to £4,000 from April 2017.
National Insurance now payable on salary sacrifice schemes for some staff benefits – from April 2017
The Chancellor announced that salary sacrificed to pay for certain staff benefits will no longer reduce National Insurance contributions paid. Salary sacrifice (or ‘salary exchange’) is where you give up part of your salary to pay for staff benefits.
Currently, if someone’s salary was reduced by, say, £1,000 to pay for certain staff benefits, this could save up to £120 in National Insurance contributions.
The new rules apply to salary sacrificed to pay for certain staff benefits, but not all. This means that salary sacrificed to pay for some staff benefits will still result in a saving of National Insurance contributions.
Which benefits are now subject to National Insurance contributions?
The main benefits which will now be subject to National Insurance contributions are as follows:
- Private medical insurance
- Critical illness insurance
- Permanent health or income protection insurance
- Life assurance
- Dental insurance
- Travel insurance
- Home computing
- Purchase of extra holidays
This list is not exhaustive and you should speak to your human resources or personnel department to find out how you will be affected.
The cost of the following benefits will still reduce National Insurance contributions when paid for via a salary sacrifice scheme:
- Pension contributions
- The cost of childcare vouchers
- Cycle-to-work scheme costs
- Payments for ultra-low emission cars
Personal income tax changes – from April 2017
The personal allowance – this is the first slice of your taxable income, which is tax free – will increase from £11,000 to £11,500 on 6 April 2017.
- This means that basic rate taxpayers will be better off by £100 a year, or about £2 a week.
- Higher rate taxpayers whose taxable income is less than £100,000 will be better off by £200 a year.
- Those who have taxable income of £100,000 a year or more lose their personal allowance at a rate of £1 for every £2 of taxable income above £100,000. So this group will see a smaller benefit from the increased personal allowance, and those with taxable income above £123,000 will see no benefit at all.
The basic rate tax band – the slice of your taxable income on which income tax is paid at 20% – will increase by £1,500 from £32,000 to £33,500 on 6 April 2017.
- This change will increase the level of taxable income at which higher rate income tax starts to be paid from £43,000 to £45,000.
- All higher rate taxpayers will gain £300 a year from this change in addition to any gain they make from the increase in the personal allowance.
Other changes coming in from April 2017
Further measures announced in the 2016 Budget will be coming into effect from April next year. For a reminder of what’s due to happen then – including important information on the new Lifetime ISA – read our article Summarising the Budget: 5 insights for savers.
Personal tax changes introduced on 6 April 2016, which you may have missed:
Dividend taxation – in April 2016, a new system of taxing dividends was introduced. The first £5,000 in dividends received from shares in public or private companies or from dividends paid by funds that invest in equities is now tax-free. We published a guide to these new rules earlier this year.
The Personal Savings Allowance was introduced, allowing basic rate taxpayers to earn interest on their savings of up to £1,000 per tax year and higher rate taxpayers £500 per tax year, tax free. The allowance is not available to additional rate income tax payers (those with taxable income above £150,000).
You can find out more about the Personal Savings Allowance by reading our short guide.
Capital Gains Tax – the rate at which capital gains are taxed reduced from 18% to 10% where the gain (when added to other taxable income and gains) falls within a person’s combined personal allowance basic rate tax band. Where the gain (when added to other taxable income and gains) falls within the higher rate tax band, the rate of tax charged on capital gains is now 20% rather than 28%.
One important exemption to this reduction in the rate of Capital Gains Tax applies to gains made on the disposal of residential properties, such as buy-to-lets and second home. Here the rates remain at 18% and 28% respectively.