Background to the Autumn Budget 2018
Yesterday’s budget speech was a unique moment for more than one reason. It is no secret that Philip Hammond would not have been taking to the dispatch box to deliver his second Autumn Budget had Theresa May won a majority in the snap election of 2017. As it turned out, the Chancellor was faced with the challenge of outlining a long term fiscal and spending strategy in the face of the UK’s imminent and uncertain departure from the EU. Unsurprisingly, the Budget plans assume that a deal is finalised with the remaining EU member states before Brexit that will ensure friction-less reciprocal trade. Mr Hammond was clear that a WTO terms ‘no -deal’ scenario would necessitate an emergency Spring Budget in 2019.
But despite his somewhat tenuous grasp on the red briefcase and the cloud of uncertainty surrounding the conclusion of the Brexit negotiations, Mr Hammond had one big piece of good news, buoyant tax receipts and an improved outlook for employment have led to a significant fiscal windfall. According to the Office for Budget Responsibility (OBR) report, this would have been sufficient for the government to meet its deficit target in 2025. But the OBR summary also pointed out, “this had already been swallowed up by the Prime Minister’s promise of more money for the NHS in June, to which the Chancellor has added a further near-term tax and spending giveaway. This leaves the medium-term outlook for government borrowing little changed since March.”
So what were the key announcements from yesterday’s Budget?
- Growth: OBR forecasts for UK growth have been upgraded from 1.3% to 1.6% in 2019. Forecasts for 2020 and 2021 remain unchanged at 1.4%.
- Borrowing is expected to reduce to £20.8 billion by 2022/23, an improvement over the £21.4 billion forecast in March 2018.
- Tech Tax: The problem of tech giants like Amazon, Facebook and Alphabet paying very little tax on their UK attributable earnings will be tackled with a UK Digital Services Tax, aimed at companies with a worldwide revenue of £500,000,000 or more.
- Stamp duty relief will be extended to include first time buyers of shared ownership homes up to a value of £500,000.
- Tax Allowances: The personal allowance will be lifted to £12,500 and the threshold for higher rate tax will be increased to £50,000 from April 2019, one year earlier that expected.
- Money for the NHS: An additional £20.5 billion over the next 5 years will go to the NHS as announced by the Prime Minister in June. This will include a new mental health service.
- Infrastructure: £420 million will be spent on improving infrastructure.
- Help for smaller businesses: Businesses with a rateable value of £51,000 or less will have their business rates reduced by a third.
Impacts on financial planning
Overall, there has been little change to key policy areas affecting financial planning. We broadly welcome a prolonged period of legislative stability as it is beneficial for long term financial planning. Some key points were:
- Annual exempt amount for Capital Gains tax to increase to £12,000 from April 2019.
- The starting rate for savings income will stay at £5,000.
- The IHT threshold remains £325,000. The residence nil rate band will increase to £150,000 as planned.
- The amount that you can put in to your pension each year and qualify tax relief remain the same, up to £40,000 or 100% of earned income for those who have not yet accessed pension income via flexi-access drawdown and £4,000 for those who have.
- The rates of tax relief on pension contributions also remain unchanged.
- The lifetime allowance (the amount you can have saved in your pensions before an additional tax charge becomes due) will increase to £1,055,000.
- In a welcome move, the government will consult on ways to reduce the complexity of trust taxation.
- The annual ISA allowance will remain fixed at £20,000.
Get in touch
If you want to discuss any aspect of yesterday’s Budget then please do not hesitate to contact us.