With the Office for Budget Responsibility (OBR) more cautious on growth than the Bank of England, the Chancellor outlined a Budget overshadowed by a downgrade in the UK economic prospects for 2017 from 2% to 1.5%, whilst seeking to prepare the country for the lead-up to Brexit.
Despite rumours the Chancellor chose to leave pensions alone; we welcome this period of stability following the reforms of recent years.
The OBR also trimmed its outlook for potential productivity growth – as highlighted in our recent blog the UK is failing to keep up with global productivity levels. A chronic lack of investment, excessive regulation and the growth of low-level, low-paid service jobs only partly explain the gap.
There were some modest measures in the Budget to support training and transport infrastructure. Hopefully we’ll hear more when the government’s Industrial Strategy is launched on Monday.
Individual Savings Accounts (ISAs)
The annual allowance for ISAs will remain unchanged at £20,000. Junior ISAs will rise in line with the consumer prices index (CPI), taking the limit up to £4,260.
As previously announced, the lifetime allowance on pensions will increase in line with CPI, taking it up to £1.03 million for 2018-19.
Electric cars and diesel emissions
The government has set aside £200m which will be match funded by industry to promote the roll out of electric charging points, as well as another £100m towards discounts on battery cars for consumers.
From April, diesel drivers face higher taxation on cars that fail to meet the latest standards.
Mixed news for Enterprise Investment Schemes (EIS)
The annual limit for individuals investing in knowledge-intensive companies under the EIS will be increased to £2 million, provided that anything above £1 million is invested in this type of company. The additional tax relief means individuals may be able to claim income tax relief of up to £600,000 given the right investments. An attractive opportunity for those looking to supplement their £40,0000 annual pension contributions. However, the Chancellor also stated his intention to prevent EIS being used as a tax shelter for low risk capital preservation.
The Chancellor also announced that he would allocate a further £2.3 billion for investment in R&D and increase the R&D tax credit to 12%.
Changes afoot for Venture Capital Trusts (VCTs)
Reducing the timeframe in which VCTs have to invest new capital may result in those that participate in larger fundraises struggling to deploy this capital appropriately. It may also lead to smaller and more frequent fundraising rounds. VCTs will also have to invest a minimum of 80% of capital in qualifying assets, up from 70%, in an attempt to further focus their investment universe on true venture capital.
More stringent requirements on loans is likely to increase the risks associated with many VCTs, including the potential for more volatile returns. Loans are often useful to provide income to investors. This is concerning, as a key attraction of VCTs is tax-free dividends.
Inheritance tax revenues top £5bn
Official Budget figures show revenue from inheritance tax has hit £5.3bn this tax year and is expected to hit £6.5bn in 2022.
It’s worth remembering that the £3,000 gifting allowance has been frozen for over three decades (since 1981), making inheritance tax planning essential for you to pass on more to your loves ones.
The personal allowance will rise to £11,850 from April, from the current £11,500. The higher rate tax threshold will rise to £46,350 from April, from the current £45,000.
As a result of the changes, this means a typical basic rate tax payer will be £1,075 a year better off compared to 2010.
No more indexing of corporate capital gains
Corporation tax was maintained at 19% but changes were announced to the way companies’ chargeable gains are calculated. The Indexation allowance, which takes inflation into account when calculating a company’s chargeable gains, will be frozen from 1 January 2018.
The Indexation allowance was removed for individual capital gains back in 1998.
Joker in the pack
As of today, stamp duty has been abolished for first time buyers: on properties worth up to £300,000 entirely, and on the first £300,000 of properties bought for up to £500,000. However, it is debatable whether this will have the desired effect of making houses more affordable for first time buyers, or simply be absorbed into rising prices.
As with every Budget, the devil is often in the detail. As more details come to light, we will add blogs on specific topics to our website. As always, if you have any questions then please do not hesitate to contact your EQ adviser.