2016 was an interesting year for UK residents. Starting with former Chancellor George Osborne’s spring budget in April, through to the EU referendum leave vote in June and to the current Chancellor’s Autumn Statement; major changes to the British economy are underfoot.

In the spring budget of 2016 efforts were made to prepare for stormy conditions ahead. Osborne increased personal allowances and tax year savings limits on ISAs from April 2017 as follows:

  • A new Lifetime ISA was made available for adults under the age of 40. They will be able to contribute up to £4,000 per year, and receive a top up bonus of 25% from the Government. Funds, including the Government bonus, from the Lifetime ISA can be used to buy a first home at any time from 12 months after the account is opened, and can also be withdrawn from 60 years of age to help with retirement.
  • The total ISA annual limit will increase from £15,240 to £20,000.

He also introduced the following changes to income and capital gains tax.
Income Tax:

  • For tax year 2016/17 the personal allowance was increased to £11,000 and for 2017/18 it will increase to £11,500. Philip Hammond, in his autumn statement, has further increased personal allowance by £1,000 from £11,500 to £12,500 for tax year 2017/18.
  • For tax year 2016/17 the higher rate threshold, the level after which taxpayers begin to pay 40% tax, will increase to £43,000 and for 2017/18 it will increase to £45,000. The increased threshold is expected to reduce the numbers of individuals paying higher rate tax.

Capital Gains tax changes effective in this current tax year from April 2016:

  • For disposals on or after 6 April 2016 the highest rate of capital gains tax for individuals will reduce from 28% to 20%, and the basic rate will be reduced from 18% to 10%

Existing Chancellor Philip Hammond in his autumn statement honed in on boosting business and commerce, whilst spreading money into lower income working families or those that the government terms Jams (just about managing). As well as increasing the personal allowance threshold from the proposed £11,500 to £12,500, Hammond also increased the National Living Wage from £7.20 to £7.50 again effective from April 2017.
Corporation tax is to be reduced from 20% to 17%; the previous Chancellor had proposed this but to be effective from 2020.
Start up funding for businesses is to be made available and more accessible through a funding pledge of £400m for venture capital funds which; will unlock £1bn of finance.
As workers migrate to cities where there is greater availability of jobs; increased budgetary control and funding is being given to elected mayors and city-based Local Enterprise Partnerships (LEPs).

Taking £1.8bn from Local Growth Fund for English regions: £556m is given over to LEPs in the North of England, £542m to the Midlands and East of England, and £683m to LEPs in the South West, South East and London.
London will receive £3.15bn of the total £3.7bn National Housing Infrastructure and affordable homes fund to deliver more than 90,000 homes. London will also be awarded full control over its adult education budget.
Unaffordable housing, which is fuelled in part by the housing lag, has impacted both Chancellors’ budgets. As well as increasing investment in National Housing Infrastructure and affordable housing both Chancellors have changed tax and legislation for landlords and second homeowners.
In Hammond’s autumn statement tenants are no longer to be charged fees for rented accommodation, the fees often encompassed credit checks and inventory check-ins.

In Osborne’s autumn statement of 2015 two measures were taken to curb rising house prices and the private rental market, effective from April 2016.

  1. Tax relief on mortgage interest rates that finance second homes, was to be restricted to the basic rate of tax over four years commencing April 2016.
  2. Stamp Duty for buy-to-let properties was to be paid at the standard rate with an increase of 3% points on each Stamp Duty band.

At the same time new Help to Buy ISAs were launched in April 2016 to help first time buyers save for a mortgage deposit. The Help to Buy ISAs differed from other ISAs because the government will add a 25% cash bonus on savings between £1,600 and £12,000 to help first time buyers save more.

Help to buy ISAs explained:

  • First time buyer definition: A UK resident aged 16 or over who has never owned or had an interest in a residential property, either inside or outside of the UK, whether it was bought or inherited
  • First time buyers can save up to £1,200 in the first month, and then £200 per month after that
  • The £200 per month saving investment can be topped up if missed, but cannot equal more than £2,200 in the remaining 11 months
  • The State adds 25% tax free to whatever is in the ISA when you use it for a deposit. There are two exceptions to this: there must be a minimum of £1,600 in the ISA, and, the maximum the State would add would be £3,000 tax-free on a £12,000 ISA. If the ISA is worth more than £12,000 it can be kept as a savings account
  • The current scheme will pay out as described until December 2030 and is available as described until the end of this tax year.

Both Chancellors have been keen to move generation rent from rented housing into homeownership, and provide more housing for working families.

In the autumn statement of 2016 further inducements were made to encourage saving:
A new savings bond, with an interest rate of about 2.2% will be launched through National Savings and Investments. The bond will be available to those aged 16 and over, where a minimum investment of £100 and a maximum investment of £3,000 has been set. Savers must invest for three years. The new product will be available for 12 months from spring 2017.

However retirees are being restricted. New limits are to be placed on the reinvestment of pension pot savings. The new tax-free allowance falls from £10,000 to £4,000 in April 2017, affecting all of those who would wish to take money from their defined contribution pension pot.

In summary both Chancellors have delivered major changes to pensions, ISAs, capital gains and corporation tax, and second property investments. As always we would advise you to contact your IFA for expert financial advice and planning.

If we manage your finance planning for you please do give us a call regarding these changes on 01243 532 635, or drop into our offices.

We wish you a very merry Christmas and a prosperous New Year.