We weren’t expecting too many financial planning surprises in yesterdays’s Autumn Statement – and we weren’t disappointed by the new Chancellor, Philip Hammond. Much of the focus was on infrastructure and unlike his predecessor there was no big reveal.
However, the amount you can save into a pension – once you have already taken some money out – has been slashed by the Government in a bid to clamp down on those seeking “double tax relief”.
The move will hit hundreds of thousands of people, aged 55 and over, who have used the new “pension freedoms” available since April 2015 and taken cash from their pension pots.
Life Insurance/Capital Redemption policies
Following the part surrender and part assignment consultation, the Government will legislate in the Finance Bill 2017 to allow applications to be made to HM Revenue and Customs to have the charge recalculated on a just and reasonable basis. This will lead to fairer outcomes for policyholders. The changes will take effect from 6 April 2017.
Personal Portfolio Bonds (RL360, Old Mutual International, Friends Provident International)
Following the personal portfolio bond consultation, the Government will legislate in the Finance Bill 2017 to amend the list of assets that life insurance policyholders can invest in without triggering tax anti-avoidance rules. The changes will take effect on the Royal Assent of Finance Bill 2017.
Insurance Premium Tax
Insurance Premium Tax will increase from 10% to 12% from 1 June 2017.
As previously announced, the deemed domicile test will be amended from 17 out of 20 years to 15 out of 20 years from April 2017. Also UK domiciles of origin will be considered UK domiciled at any time where they are resident in the UK.
UK property held indirectly by a non-domiciled individual through an offshore structure (for example a company or trust) will become liable to IHT from April 2017, as expected.
The Business Investment Relief scheme will also be simplified from April 2017 to encourage offshore money investing in UK businesses.
A new penalty is being introduced for those helping someone else to use a tax avoidance scheme. The penalty is intended to ensure that those who help people tax avoiders whose tax avoidance schemes are defeated by HMRC also face the consequences.
Tax avoiders will not be able to use the defence of taking reasonable care by relying on non-independent tax advice.
The tax treatment of pension income and lump sums arising from a foreign pension scheme will be brought into line with the treatment of some payments from a UK registered pension scheme.
At the moment, foreign pension income in the hands of a UK resident for tax purposes is taxed on 90% of the amount that would apply if they had received income from a UK registered pension scheme.
The Government will also:
- close, to new saving, specialist occupational pension schemes operated by UK employers in respect of employees who are employed abroad set up under section 615(3) of the Income and Corporation Taxes Act 1988;
- extend the taxing rights over recently emigrated non-UK residents’ foreign lump sum payments from funds that have had UK tax relief after 05/04/2006 from 5 to 10 years;
- align the tax treatment of funds transferred between RPSs; and
- update the eligibility criteria for foreign schemes to qualify as overseas pensions schemes for tax purposes.
Consequently, the recent trend to reduce the number of overseas pension schemes on the Government’s recognised overseas pension scheme (ROPS) list is likely to continue.
Combatting pension scams
The Government will publish a consultation shortly on options to tackle pension scams, including banning cold calling in relation to pensions, giving firms greater powers to block suspicious transfers, and making it harder for scammers to abuse ‘small self-administered scheme (SSAS) arrangements.
Following a consultation, the tax and employer national insurance advantages of salary sacrifice schemes will be removed from April 2017, except for arrangements relating to a registered pension scheme (RPS) (including advice), childcare, cycle-to-work and ultra-low emission cars.
Therefore, it will still be possible for employers to use the salary exchange facility to enhance the pension benefits of their employees. The employee would pay lower income tax and national insurance contributions (NICs) and the employer would pay lower NICs, or redirect their NICs savings into their employee’s pension.
However, for any employee with a threshold income of more than £110,000 in either 2016/17 or 2017/18, any employer contribution into a money purchase RPS, or benefit accrual for a defined benefits or cash balance RPS, would count towards the employee’s adjusted income. If their adjusted income was greater than £150,000 in either of those tax years, they would lose £1 of their annual allowance for each £2 of adjusted income above £150,000, down to a minimum annual allowance of £10,000 (for those whose adjusted income is £210,000 or more).
Money Purchase Annual Allowance (MPAA)
The MPAA will be reduced to £4,000 from April 2017, as the Government does not consider that earners aged 55 and over should be able to enjoy double pension tax relief, such as relief on recycled pension savings, but does wish to offer scope for those who have needed to access their savings to subsequently rebuild them.
The Government has issued the following consultation regarding the details.
The tax-free personal allowance is being increased to £11,500 in 2017-18.
For higher rate taxpayers, the Government will also increase the threshold above which higher earners start paying 40% tax. It will increase to £45,000 in 2017-18.
The Government is committed to raise the personal income tax allowance to £12,500 and the higher rate threshold to £50,000 by the end of this parliament.
Once the personal allowance reaches £12,500, it will increase in line with inflation.
The Government intend to cut corporation tax to 17% by 2020.
The information provided in this article is not intended to offer advice. To review your financial planning in light of the recent UK Autumn Statement 2016, speak to one of the team today via firstname.lastname@example.org