Chancellor’s Autumn Statement – Some Highs & Lows

Bevan & Buckland AccountantsSummary Of Today’s Autumn Statement Relating To Personal Clients

Amongst the many and varied issues mentioned by George Osborne today, the following is a brief summary of some of the main announcements that could affect the majority of our personal clients.

Personal Allowance

This will rise from £8,105 to £9,940 per year from April 2013, an increase of around 16% and quite possibly a concession to the Lib Dem’s (who had originally promised to increase it to £10,000).

Higher Rate Taxpayers

The Higher Rate Tax (HRT) limits will increase to £41,865 in 2014/15 and £42,285 in 2015/16.  The forecast is that this will mean an additional 400,000 people paying HRT by 2015/16.  The Upper Earnings Limit and Upper Profits Limit for National Insurance will also rise in line with the increases in the HRT limit, so higher earners (in the Government’s definition) will end up paying NICs on more of their money.

State Pension

The Government had already announced their so-called “triple lock”, linking future increases to inflation, earnings or 2.5%.  Today’s announcement confirmed that Basic State Pension will rise by 2.5% from April, an extra £2.70 per week.

Fuel Duty

As forecast, the 3p per litre rise in fuel duty planned for January 2013 has been cancelled (at least for now).

Capital Gains Tax (CGT)

The main annual CGT exemption will rise to £11,000 in 2014/15 and £11,100 in 2015/16, a rise of just 1% per annum.

Inheritance Tax (IHT)

Although the Nil Rate Band (of £325,000) remains frozen as planned until 2014/15, it has now been announced that this will rise by just £4,000 to £329,000 from 2015/16.  Bearing in mind it has been frozen at this level since April 2009, this equates to an annualised increase of just 0.2% per year! 

Individual Savings Accounts (ISAs)

The overall annual limit will rise from £11,280 to £11,520 from April 2013.  Although no details have been provided, we assume this will mean an upper limit for cash ISAs of £5,760 per Tax Year.

Pensions

As widely expected, the annual amount that can be contributed (and still be eligible for tax relief) will fall from £50,000 to £40,000 from 2014/15.  The Lifetime Allowance (the total amount you can hold in pensions) will also fall from £1.5m to £1.25m during the same period.  Although it may seem that this will not affect many people, the last time this happened the hardest hit were people with final salary pensions, in particular public sector employees such as NHS.  There is no indication whether concessions will be available for people with funds already in excess of this limit, as happened previously.

For anyone with an Income Drawdown contract, you will recall that the maximum income limit was reduced from 120% to 100% of the prevailing Government Actuaries Department (GAD) limit in 2011.  Today’s statement confirms that the Government will increase the limit back to 120%, although there is no indication when this will apply from.  Of equal importance, contrary to some significant lobbying from the industry and others, there was no indication that they would be reviewing the way these GAD limits are set (specifically the current link to UK Government gilts). 

Other Areas

There were several announcements made regarding benefits, both for people of working age and otherwise.  As these will not affect the majority of our clients I have not included any detail here, but if it is of interest the information can be view on the HM Treasury website by clicking here.

Comment

The above announcements are a real “mixed-bag”.  Whilst the increases to such things as the Personal Allowance is welcome, the minimal increases to State Pension, CGT, IHT and ISAs will not have much of an effect on the majority of the population.

According to the Treasury statement, only 1% of all people that pay into pensions contribute more than £40,000 per annum, with the average contribution being around £6,000 per annum. 

What is more of a concern to us is the continual bad press that tinkering with the current system generates.  On one hand politicians tell us all to save for our retirement (so we don’t become a burden on the State), but on the other they then constantly change the system.  The same Treasury bulletin confirms that the average “pension pot” (their words) for someone approaching retirement is just £55,000.  With annuity rates remaining at historic lows, everyone needs to be encouraged to save more.  Changing the system yet again does nothing to help this situation.

Finally, and still on pensions, whilst the reversal of the maximum limits for drawdown holders is very welcome, this only goes part of the way to addressing the issue. 

Pension drawdown holders have seen the maximum income they can take reduced by as much as 60% over the last 2 years, through a combination of the reduction in the upper limit, GAD rates at historic lows and difficult investment conditions.  There is little that can be done by Government to influence investment returns, but without addressing how the GAD rate is calculated the rise from 100% to 120% will only go so far to addressing the problem.

Gareth Tregidon

Gareth Tregidon is manager of Bevan & Buckland’s Financial Planning Department, which operates from the firm’s Swansea, Pembroke and Haverfordwest offices. The department provides fee-based advice to personal and business clients, both from within the firm and elsewhere.

As well as having over 25 years’ experience in the provision of financial advice, Gareth is a Certified Financial PlannerCM and an accredited Later Life Adviser with the Society of Later Life Advisers (SOLLA).  He is former Chairman of the Institute of Financial Planning in South Wales, and an assessor for the internationally recognised Certified Financial PlannerCM licence. 

http://www.bevanbuckland.co.uk/services/financial-planning

Bevan & Buckland Accountants Swansea Tel: 01792 410100

Bevan & Buckland Accountants Haverfordwest Tel: 01437 760666

Bevan & Buckland Accountants Pembroke Tel: 01646 682383

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: