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Autumn budget was one for the young

Autumn budget was one for the young

In many ways Chancellor Hammond’s autumn budget was one for the young; especially for those that aspire to be homeowners. In the recent general election 60% of voters aged 18-24 voted Labour whilst 61% of over 64’s voted Conservative. It is unsurprising that the budget addressed this Labour voting group.

How the budget helps young people in work

Key to keeping young people in work; is the requirement that they are able to live a commutable distance from jobs. As the majority of work is located in cities, there were changes made to housing provision in urban areas. The plan the Chancellor said is: “ to build high-quality, high-density homes, in city centers and near transport hubs.”

  • An enquiry into planning permission was launched on 22 November. The enquiry will look into affordable housing and brownfields developments where wasteland could be freed up if planning restrictions were lifted. The enquiry results will be delivered before the spring budget.
  • Commuting budgets will stretch further with the introduction of a rail-card for 25-30 year olds. Plans to ensure that new homes are built with electric car charging stations have been put in place. A commitment of £400m has been made to a new ‘charging infrastructure fund’ for electric cars. An extra £100m has been put towards helping people to buy electric cars. Though fuel duty is frozen there will be a temporary rise, from April 2018, on Company Car Tax and on Vehicle Excise Duty on all new diesel cars. This does not affect commercial vans used by tradespeople.
  • There will be tougher penalties for development companies that acquire land and ‘bank’ it, without building on the land. Councils will also be given the power to charge 100% of council tax on empty properties that are located in sought-after areas.
  • Five new garden towns will be created in the Oxford-Milton Keynes-Cambridge areas as part of an economic growth initiative.
  • In keeping with the extension of garden towns the Transforming Cities initiative £385m will be pledged to projects to 5G and full-fibre broadband.
  • Stamp duty up to £300,000 is abolished on homes under £500,000 for first time buyers. The first £300,000 is exempt from stamp duty only, after that normal stamp duty rates apply. For example on a £500,000 home 5% stamp duty would be due on the remaining £200,000.
  • A pledge to build 300,000 new homes per year until the mid 2020’s was made, with an additional £15.3bn in this budget taking total housing budget to £44bn.
  • The minimum wage was increased to £7.83 per hour.
  • Also increased is the personal tax-free allowance which; will go up to £11,850.
  • The 40% tax threshold will increase to £46,350.

Thankfully there were no more changes since last years’ autumn budget to ‘pension freedoms’ that were introduced in April 2015.

The NHS will receive an additional £6.3m of funding.

Duty on beer, wine, cider and spirits is frozen.

An additional £1.7bn will go towards improving transport in English cities.

As ever we would advise you to speak to an Independent Financial Advisor about your finances. To discuss your finances with one of our local Chichester IFAs please call 01243 532 635 to speak to one of our experts. We have specialists that are able to discuss specific options with you.

To discuss mortgages & insurances please ask to speak to James Mayne.

To discuss Life, serious illness and income protection insurances (to protect a debt such as a mortgage or to make sure that your family is well looked after financially after the death of a parent/partner) or equity release to help you plan for income in retirement please ask to speak to Hamish Gairns.

To discuss retirement and investment plans with us please ask to speak to Richard Smith.

Time to assess finances before the tax year changes

The start of the calendar year is always a good time to assess finances. It gives businesses and individuals two to three months to seek and implement expert finance advice.

In recent budgets the government has looked to remedy:

  • Low homeownership amongst young people (those that are in their 20’s and 30’s)
  • Rich retirees (over 55’s that own their own property or properties and have income from pensions and other investments)
  • Business start up and running costs (with additional help for tech companies and city-based firms where a Local Enterprise Partnership sits)
  • Low income (particularly for young people and working families).

In other words the remedies are far reaching, they impact allowances and tax for all age groups and income types eg PAYE, self-employed, pensionable and business owner; we urge individuals to seek advice from their IFA.

Low homeownership – budget changes

New Help to Buy ISAs were launched in April 2016 to help first time buyers save for a mortgage deposit. The Help to Buy ISA differs 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.

This is good news for first time buyers, and parents or grandparents that may want to help offspring get onto the property ladder. The Help to Buy ISA can be contributed to by groups of people. UK Mortgage lender the Halifax recently reported the highest first time buyer’s homeowner figure (at 335,750) in nine years, and they report that this trend is running on into 2017.

At the other age-end of the spectrum rising house prices are catching out some property owners.

Inheritance Tax Planning

In 2015/16 HM Revenue and Customs (HMRC) took a record £4.6 billion in inheritance tax (IHT); which represents a 21% increase from the £3.8 billion that was taken in 2014/15. Despite the threshold for IHT being fixed since April 2009 at £325,000; increases in London and Southeast property values are causing more individuals to get caught by the tax. The government has new plans to introduce a higher probate fee for properties valued at over £2million. The fee was £215 but will become £20,000. This heralds the start of tiered probate fees that will keep pace with rising property values.

Individuals could consider products such as Investment Savings Accounts (ISAs) or Enterprise Investments Schemes (EISs) when Inheritance Planning, we would recommend seeking expert advice from an IFA.

Mortgages for the over 55’s reach a 10 year high

2015 to 2016 is a record year for Equity Release or lifetime mortgage applications. Lending reached a 10 year high with over £198m in mortgages agreed between the first halves of 2015 and 2016, according to the Equity Release Council (ERC). Figures from the ERC show a record number of drawdowns (76%) on lifetime mortgages, to access housing wealth. The growth of equity release product choice for over 55’s mortgages is at 34% Year-on-Year, and has positively impacted pricing. Housing and property wealth is used to fund better lifestyles and home improvements to support retirement planning for people, who are typically aged, 56 to 74 years’ old.

However in efforts to curb rising house purchase and house rental prices; new measures effecting second homeowners were introduced in April 2016 and are being sustained into April 2020.

Landlord Tax effective from April 2017

  1. Tax relief on mortgage interest rates that are used to finance second homes is to be restricted to the basic rate of tax over four years to April 2020 commencing April 2016.
  2. Stamp Duty for buy-to-let properties is to be paid at the standard rate with an increase of 3% points on each Stamp Duty band.

Retirees pension pot reinvestment budget changes

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.

Higher rate tax relief for people with incomes over £150,000 per annum has been curtailed since 2009 and fell to the annual allowance (AA) of £10,000 in tax year 2016-17. In addition Lifetime Allowance (LTA – the total amount you can hold within your pension without paying tax) fell to £1,000,000 in tax year 2016-17.

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.

Contact MarchwoodIFA to speak to one of our expert finance advisors: 01243 532 635

2016 roundup and what to expect in 2017

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.

Autumn Statement

Chancellor Hammond in his Autumn Statement of 2016 mapped out the next decade as best he could. In contrast to former Chancellor George Osborne, where a keen eye was kept on national debt, Gross Domestic Product (GDP) and austerity measures post the great recession of 2008; Philip Hammond set out a period of extended borrowing, with a stop on welfare cuts and increased investment in businesses, transport and infrastructure.

 

All very well and good if you are an economist; but from a domestic perspective, a closer look at living costs, housing, technology, economic growth, business, transport and income will help to understand how the Autumn Statement will effect UK residents.

 

Living costs

The freeze on fuel tax is extended for the seventh year bringing an average annual car driver saving of £130 and an annual average van driver saving of £350.

There will be a further increase to Insurance Premiums Tax (IPT) from 10% to 12% effective from June 2017. This will effect: cars, homes and private medical cover insurances.

The average household is expected to pay an additional £51 in insurance annually. Measures have been announced to cut whiplash claims which; is expected to reduce car insurance premiums by £41 on average per annum.

Insurance industry experts have complained that this IPT increase follows two previous IPT increases, all of which have fallen in an 18month period. They expect that the rise in tax will increase premiums for 50m UK residents and have dubbed it “the stealth tax”.

 

Housing

As homeownership is in decline in the UK and private rent is increasing in price, the Chancellor has pledged additional funding to make housing more affordable for first time buyers, and also where there is significant housing demand.

Charging tenants fees for rented accommodation, (typically charges were made against tenants for reference and finance checks,) have been banned.

A fund of £2.3bn has been given over to Housing Infrastructure investment, a frequent blocker to planning permission being granted. The fund is to be allocated to open up sites for 100,000 new homes in high demand areas such as London and the southeast.

The construction of 40,000 affordable homes has received funding of £1.4bn. Funding for a right-to-buy regional pilot scheme will enable 3,000 housing association residents to buy their properties at a discounted rate.

 

Income, work and transport

As anticipated tax breaks are being given to the working population while some tax breaks are being refined to fund those that are working and Just About Managing (Jams).

Workers will be exempt from paying tax until they reach annual earnings of £12,500 or over.

Salary sacrifice; where employees are permitted to trade their salary for perks will be curbed but, ultra low emission cars, childcare and cycle to work schemes will be excluded from plans to scrap employee tax breaks.

Working families will be eligible for 30 hours a week of free childcare for all three and four year olds from September.

The National Living Wage is being increased from £7.20 to £7.50 per hour effective from April 2017.

Universal Credit the single monthly payment for people that are unemployed or on low incomes will be increased by £700m for an estimated three million families. Individuals will be paid £0.65, as opposed to £0.63, for every additional £1.00 earned by them through work over their work allowance threshold.

English local transport networks receive £1.1bn in funding, £220m for ‘pinch points’ on national roads, £450m to trial digital signaling on railways and £390m for development of low emission vehicles.

East West Rail receive £110m of funding and a commitment to deliver the new Oxford to Cambridge Expressway.

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.

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, affecting all of those who would wish to take money from their defined contribution pension pot.

 

Technology

In an effort to boost productivity Hammond pledged £23bn to a new national productivity investment fund. Monies will be allocated towards technology and scientific innovation.

As part of Chancellor Hammond’s vision for the “UK to be a world leader in 5G” £1bn in funding goes towards 5G and digital infrastructure.

New fibre infrastructure will receive 100% business rates tax relief for the first five years.

 

Economic and business growth

Recognising the difficulties that start-up businesses face in funding Hammond pledged £400m for venture capital funds to unlock £1bn of finance for start-ups.

Noting the migration of workers to cities, more 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 as its share of national affordable housing funding to deliver more than 90,000 homes, as well as full control over its adult education budget.

Corporation tax will be reduced from 20% to 17%.

 

Summary

In summary, though the UK will borrow £122bn more than predicted before the EU referendum over the next five years, growth forecasts and unemployment remain forecast as low but steady. Domestically there have been changes to pensions, income and wages, also insurance premiums which; effect the cost of living.

 

For expert financial and inheritance tax planning advice in fast-changing times, speak to a MarchwoodIFA expert.

Budget 2016 update

Budget 2016 update; good news for: savings, ISA investors, small businesses and landlords.

Savings and ISAs

In an effort to prepare for stormy economic conditions ahead the Chancellor has increased personal allowances, and the tax year savings limits on ISAs. He termed this “[acting now] so we don’t pay later”.

From April 2017:

  • A new Lifetime ISA will be 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.

Income, Corporation and Capital Gains Tax

Income Tax:

  • For tax year 2016/17 the personal allowance will increase to £11,000 and for 2017/18 it will increase to £11,500.
  • 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 higher threshold is expected to reduce the numbers of individuals paying higher rate tax.

Capital Gains tax changes 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%

From April 2020corporation tax is to fall from 20% to 17%.

Housing, property and the digital economy

In order to encourage commerce, the Chancellor took several measures to support small business and micro-entrepreneurs. Osborne also introduced tiered stamp duty for commercial properties, and looked at funding to help with housing problems.

From April 2017:

  • Homeowners and landlords that let out their properties on economy sharing platforms like Airbnb won’t need to declare or pay tax on the first £1,000 they earn on the platform in the tax year. The same is true for other entrepreneurs that trade different services or products on other sharing economy platforms.

Speaking specifically to boosting a micro-entrepreneur economy the Chancellor said: “We’re going to help the new world of micro-entrepreneurs who sell services online or rent out their homes through the internet”.

From 17 March 2016:

  • The Chancellor has reformed commercial stamp duty introducing tiered payments which; are linked to the value of the property. The new rates will be 0% on properties valued between: £0 to £150,000; 2% on properties valued £150,001 to £250,000; and 5% on any property valued at £250,001 or more. The Chancellor said the new system would raise an extra £500m a year with only 9% of transactions paying more stamp duty than before.

From April 2017:

  • Small business rate relief will more than double permanently – from £6,000 to £15,000. The threshold for the higher rate business rates will also be raised. This will see 600,000 small businesses paying no business rates at all from April 2017.

Sugar tax and other duties

  • Osborne is increasing duty on tobacco but freezing taxes on home produced alcoholic beverages such as beer, cider, whisky and other spirits.
  • Fuel duty is to be frozen for the sixth year in a row.
  • The Government will fund longer school days for those that want to offer more activities including extra sport. The funding for extra sports will partly come from the sugar tax or levy on the soft drinks industry. The levy has been introduced because of the increasing problem of child obesity. The levy will raise £520m and will be assessed based on the level of sugar content in soft drinks that are produced, and also the volume of soft drinks sales.

Tax avoidance measures for large corporations and the public sector

  • Multinationals that over borrow abroad, and deduct the interest bills against UK profits to reduce their tax bills will be targeted, as will as other tax loopholes.
  • The Chancellor said that he will shut down disguised remuneration schemes, ensuring UK tax will be paid on UK property development, and also that he will change the treatment of remote gaming providers as regards tax.
  • Osborne also warned public sector companies that they will have to ensure their employees pay the correct tax; rather than allowing them an advantage if they are paid through personal service companies.

Funding increases

  • A fund of £115m has been allocated to help the homeless and those sleeping rough.
  • Spending on flood defences is to be increased by £700m funded by a 0.5 percentage point increase in the insurance premium tax.

Don’t forget the ISA allowances for this tax year end on 5th April – use it or lose it!
It’s not too late to contact a Marchwood IFA today, to arrange a consultation. Call 01243 532 635 for friendly up-to-the-minute investment advice.

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