In this five part series, Rutton Viccajee explains the headlines from the Autumn Statement 2016. If you would like to know more about what the Chancellor has said (and Rutton’s analysis of why he said it), then read on…
Personal tax and NI
From April 2017:
The personal (tax-free) allowance increases from the current £11,000 to £11,500
The higher rate threshold increases from the current £32,000 to £45,000
The policy is to increase these to 12,500 and 50,000 respectively ‘by the end of this parliament’.
£500 of tax free allowance at 20% is hardly earth-shattering, but the higher rate threshold is. This is a real surprise, and will be of major benefit to many of our clients.
(£13,000 at potentially 20% of tax saving is a lot of money)
The threshold has progressively reduced from £37,400 in 2010 to 32,000 in 2016.
This good news, however, re-doubles the need for careful tax planning in February and March 2017.
But what’s the thinking? We were presumably naughty if we earned more than £32,000, plus the personal allowance of £11,000 (= £43,000). Now we are OK up to £56,500. And naughty after that.
Under Trump and Corbyn, who knows. We live in such morally uncertain times. Squirrel it away under the mattress? Well, not quite yet…
Class 2 NI
Currently £2.80 pcw, payable as part of the self-assessment tax bill, is to be abolished as from April 2018.
It was an anachronism, a relatively very small tax (£146 p.a.). It probably cost more to administer than the dog licence and road tax disc combined.
Class 4 continues to be payable as part of your tax bill if you are self-employed, and Class 3 remains an option if you need to boost your state pension for any reason.
New tax allowance for property and trading income
Two new income tax allowances of £1,000 each, will be created (presumably from April 2017) for trading and property income.
They probably need to spend the admin. time chasing the billions in unpaid tax, rather than fussing with those who have less than £1,000 of rental or trading income.
(They say they have collected £130 billion in unpaid tax since 2010 – but the real annual figure that remains unpaid is MUCH larger, staggeringly larger – and unknown.)
So, good news for small traders, small landlords, or for those who have just had a bad profit year!
ISA limit: This will increase from £15,240 to £20,000 from April 2017
Ah! If only I had some savings…
Pensions money purchase annual allowance – This will be reduced to £4,000 from April 2017.
The main allowance remains at £40,000 p.a.
The reduction from £10,000 to £4,000 only affects those dodgy over 55’s (like me) who were tempted (only briefly in my case) to invest in a pension, get 40% or more tax relief, then take it out again immediately, 25% tax free, and pay possibly a lower rate of tax on the balance. A nice little earner if you can get the figures right, but something of a loophole.
Still worth doing for £4,000? Depends on your point of view. Let’s keep morality, and the starving millions, out of it for now.