Monthly Archives: November 2018

The Budget: an end to austerity?
November 2018

The 2018 Budget – delivered on a Monday for the first time since 1962 – produced a number of surprises, not least some high-profile ‘giveaways’.

Announcements in the Budget included:

  • A £650 increase in the personal allowance to £12,500 for 2019/20, the level originally pencilled in for 2020/21.
  • A £3,650 increase in the higher rate threshold to £50,000, again targeted for 2020/21.
  • A £25,000 increase in the pension lifetime allowance to £1,055,000 from April 2019.
  • A one-third reduction in business rates on smaller retail premises, starting from next April.
  • An increase in the annual investment allowance (AIA), from £200,000 to £1,000,000, from January.

However, Mr Hammond’s generosity was not all it appeared.  For instance, the personal allowance and higher rate threshold will both be frozen in 2020/21, while the business rates reduction and higher AIA will only last for two years. The Chancellor also kept many tax thresholds and allowances unchanged.

A good example of the impact of frozen thresholds is the personal allowance that will continue to be tapered from an income level of £100,000.  This threshold has applied since April 2010, and it creates high marginal rates for some taxpayers.  Combined with the increase in the personal allowance, for income between the taper threshold of £100,000 and the starting point for additional rate tax of £150,000:

  • the first £25,000 will be taxed at up to 60% (61.5% in Scotland); and
  • the next £25,000 will be taxed at 40% (41% in Scotland).

By far the largest element of spending announced in the Budget was for the NHS.  Investment is £7.35bn out of a total £15.09bn in 2019/20, rising to £27.61bn out of a total £30.56bn in 2023/24.  With such large amounts to secure for the health service, the Chancellor has limited scope to reduce personal tax in the medium term.

If you would like to discuss the impact of the Budget on your finances, please get in touch.

The content of this article is for information purposes and should not be treated as a forecast, research or advice to buy or sell any particular investment or to adopt any investment strategy.  It does not provide personal advice based on an assessment of your own circumstances.  Any views expressed are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness. Any expressions of opinion are subject to change without notice.

The tax treatment depends on your individual circumstances and may be subject to change in future. All rates of tax and tax reliefs are based upon our current understanding of them but may be subject to change in the future.

The Financial Conduct Authority does not regulate tax advice.

 

Losing interest in cash ISAs
November 2018

The popularity of cash ISAs is continuing to wane, according to new statistics from HMRC.  With inflation persistently above interest rates, it’s not hard to imagine why.

The bank of England recently increased the interest rate to 0.75%, but inflation was 2.7% in August 2018.  This means, if you are holding cash in an ISA or considering topping up an existing account, you need ask yourself two questions:

  1. What interest rate are you earning?  You could be earning less than the current 0.75% base rate, particularly if the account is not open to new investors.
  2. Do you need a cash ISA at all?  The personal savings allowance means you can earn interest of £1,000 tax-free per tax year if you are a basic rate taxpayer, or £500 if you pay tax at the higher rate.

For a variety of reasons, not least cheap funding available from the Bank of England, competition in the cash ISA market has waned.  For example, the Halifax is offering only 0.6% to new ISA investors for 12 months (and just 0.2% thereafter – the rate for existing Instant ISA Saver investors).  Also, National Savings & Investments cut the rate on its Direct ISA to 0.75%, defying August’s increase in the Bank of England base rate.

In April 2018, there was over £270,000 million sitting in cash ISAs, and during 2017/18 they attracted nearly £40 billion in new money according to HMRC’s statistics released at the end of August.  However, the total value of cash ISAs rose by less than £80 million over the year, including accrued interest.  This balance of new money and withdrawals followed a similar pattern to 2016/17.

Whilst historically cash ISAs have offered competitive rates for savings, with interest rates stuck below inflation it could be worth reviewing your options.  For advice on all your ISA investments, including transfer opportunities, please talk to us.

The content of this publication is for information purposes and should not be treated as a forecast, research or advice to buy or sell any particular investment or to adopt any investment strategy.  It does not provide personal advice based on an assessment of your own circumstances.  Any views expressed are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness. Any expressions of opinion are subject to change without notice.

Past performance is not a reliable indicator of future results. Investing involves risk and the value of investments, and the income from them, may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.  In strong market conditions, investments may perform favourably and provide good levels of return.  In contrast, when markets are weak, investment returns may be less favourable and produce negative returns.  Asset classes may perform independently of each other and performance can vary based upon specific market conditions.

The value of tax reliefs depends on your individual circumstances.

Tax laws can change.

The Financial Conduct Authority does not regulate tax advice.

A different view on tax reform
November 2018

A leading think tank has proposed a radical shake up of the UK tax system.

The Institute for Public Policy Research (IPPR) is a centre-left think tank that has a long history of influencing Labour Party policy.  So, its ideas on tax reform published in the final report of its ‘Commission on Economic Justice’ are of more than just academic interest.

Income tax and national insurance – The IPPR propose combining income tax and national insurance contributions (NICs) into a single tax, applicable to all income, including investment income.   They would replace the current system of incremental tax bands with a gradually rising rate applied to all taxable income, capped at a maximum 50% marginal rate above £100,000.   Their proposal would smooth out inconsistent marginal rates, as the graph shows.

Inheritance tax (IHT) – The IPPR supports the recent proposals from the Resolution Foundation to abolish IHT.  The IPPR would replace IHT with a lifetime gifts tax, payable by the recipient of a gift or legacy (other than a spouse or civil partner) – currently IHT is usually paid by the estate.  Income tax rates would apply once a lifetime receipts allowance of £125,000 has been reached.  According to the IPPR, this tax structure would raise much more than IHT, as it would largely remove the benefit of making gifts during lifetime.

Capital gains tax – The IPPR propose abolishing “most exemptions”, other than for the main residence.  Capital gains would instead be taxed at income tax rates, implying a maximum marginal rate of 50% under their proposed income tax structure.  Taxing capital gains as income is not a new idea – it was a practice previously introduced in the late 1980s, by the Conservative Chancellor, Nigel Lawson.

Corporation tax – Instead of cutting the corporation tax rate from 19% to 17% in 2020, the IPPR proposes increasing the rate to 24%, with business reliefs and allowances ‘simplified’ (i.e. cut back) to broaden the tax base.  To tackle multinational tax avoidance (a practice associated with the FAANS companies, Facebook, Apple, Amazon, Netflix and Google), the IPPR proposes an alternative minimum corporation tax, pro-rating global profits to the proportion of global turnover in the UK.

These wide-reaching proposals are unlikely to be implemented exactly as the report proposes.  But if we do see a Labour government, the IPPR could become more relevant, quite quickly.

 

The content of this publication is for information purposes and should not be treated as a forecast, research or advice to buy or sell any particular investment or to adopt any investment strategy.  It does not provide personal advice based on an assessment of your own circumstances.  Any views expressed are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness. Any expressions of opinion are subject to change without notice.

Tax treatment depends on your individual circumstances and may be subject to change in future. All rates of tax and tax reliefs are based upon our current understanding of them but may be subject to change in the future.

The Financial Conduct Authority does not regulate tax advice.

Budget 2018 – The end to austerity takes shape
November 2018

Delivered on a Monday afternoon instead of the traditional Wednesday, between key meetings in the Brexit negotiations and amidst turbulent times in Westminster, you could be forgiven for losing track of the 2018 Budget.

Despite the disruption, the Chancellor’s statement brought more focus to the pledged ‘end to austerity’, along with details of an extra £20 billion in funding for the NHS.  Whilst many people were expecting tax rises, Mr Hammond’s job was made easier in the lead up to the Budget by updated forecasts from the Office for Budget Responsibility showing borrowing was £13 billion lower than expected.

One of the most high-profile announcements by Mr Hammond is a new digital services tax – dubbed the ‘Amazon tax’ by the media.  Targeted at large companies, the tax has been set at 2% of revenue derived from UK users through use of things such as search engines, social media platforms and online marketplaces.

Coupled with this tax, and with the UK high street reeling from various high-profile company failures, the Chancellor also announced a cut in business rates for smaller retail businesses.  From April 2019 retail property with a rateable value below £51,000 will see their bills cut by one third.  Local newspapers will receive a further £1,500 discount and even public lavatories will have a new 100% relief.

Not content with appealing to small businesses and the high-street, Mr Hammond also sought to win favour with larger-than-expected increases to the personal allowance and higher rate threshold.  Originally a part of the Conservative manifesto, the increases have been brought forward by a year – from April 2019 the personal allowance will increase to £12,500 and the higher rate threshold will be raised to £50,000.

Of course, while the Budget has been delivered, voices from all corners, including Mr Hammond himself, have warned that another Budget could soon be necessary.  Whether it’s a result of the Brexit negotiations or after a General Election, we may see changes to the country’s finances in the near future.

In the meantime, there could well be many popular aspects of this Budget.  Across the changes to income tax, the politically timely digital services tax, the ninth consecutive year of frozen fuel duties and various spending announcements across roads, high-street environments and tree-planting, it seems clear Mr Hammond wants his end of austerity to be believed.

Please click here to view our budget summary.

  • This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice as at (29/10/2018). You are recommended to seek competent professional advice before taking any action.
  • Tax and Estate planning services are not regulated by the Financial Conduct Authority.
  • The value of an investment and the income from it could go down as well as up. You may not get back what you invest.