No upheavals for financial planning in the Budget but advisers must be prepared for an uncertain year ahead
There was slight trepidation in the air, when Spreadsheet Phil stood up to deliver his Budget last month.
Having a Budget in October was unusual. Of course, we are now in the new cycle of autumn Budgets and Spring Statements, the premiere of the latter having been made on 13 March.
But if the pundits are to be believed, it was also down to politics, with Philip Hammond wanting to get the process under way before the next round of parliamentary battles over Brexit begins.
That said, the 2018 Budget was always going to be a holding affair. Not only is it the final one before Brexit is due to occur, it is also the last before the 2019 spending review is published.
This will set out government expenditure for 2020/21 and, if the normal pattern is followed, the next two financial years (which would take it beyond the theoretical date of the next election).
For all the uncertainty, Hammond had a better economic background than expected for it. But while the better-than-forecast borrowing numbers, due primarily to lower-than-projected spending, may appear to have given him some welcome wriggle room, the prime minister had reapplied the straight jacket with her summer promise of £20bn a year extra for NHS spending by 2023.
So what did emerge from the constrained Budget? Well, an ebullient chancellor very deliberately positioned the Conservatives in stark contrast to the opposition. It almost had a pre-election feel to it. He made it clear that, unlike Labour, this government was to be trusted to “end austerity but continue to apply discipline”.
The key changes of relevance to financial planners are as follows:
The personal allowance and higher rate threshold will rise to the manifesto-promised 2020/21 levels of £12,500 and £50,000 a year early (2019/20). It is worth noting these changes will have an impact on the amount of relief those affected receive on their pension contributions. It is also worth noting the higher rate tax thresholds in Scotland and the rest of the UK continue to diverge and, if the Scottish threshold remains at its current level of £43,430, it will be £6,570 behind. If the rates of Scottish income tax remain higher than in the rest of the UK, more people on the same earnings but resident in different parts of the country will not only pay different levels of income tax, but also receive different pension tax relief on their contributions. The Scottish Budget takes place on 12 December.
The starting rate of tax (0 per cent) remains available for up to £5,000 of savings income.
A consultation on trust taxation reform (with the emphasis on simplification) will be launched.
Technical changes to the residence nil rate band were announced but no other inheritance tax reform. We still await the Office of Tax Simplification report on IHT.
The capital gains tax annual exempt amount is to go up to £12,000 for 2019/20. The exempt amount for most trusts will accordingly move up to £6,000.
The Isa contribution limit stays at £20,000, with the Junior Isa contribution limit moving up to £4,368.
The long-standing and much-loved CGT principal private residence relief conditions remain, but with the final period exemption for PPR relief reduced to nine months from 2020.
There were no major pension changes other than an increase in the lifetime allowance to £1,055,000 from 6 April, some proposals in relation to banning cold calling, and a “progress report” on the development of the dashboard and pensions for the self-employed. Given the chancellor’s well-reported statement that “pensions tax relief is eye-wateringly expensive”, there was no doubt much relief this was left alone – for now at least. The political situation and desire to avoid conflict within the party at this stage was probably a contributor.
Some changes to entrepreneurs’ relief, predominantly extending the qualifying period to 24 months from 6 April.
Off-payroll working changes to be extended to the private sector.
A further extensive package of targeted anti-avoidance measures.
So no major changes to the key areas of financial planning. Not even in relation to the anti- tax avoidance provisions. A robust package of anti-avoidance measures has become standard fayre at Budget time – and this year is no exception, though few, if any, will impact financial planning strategies.
The constant flow of targeted anti-avoidance rules, the general anti-abuse rule, successful litigation, extended disclosure of tax avoidance scheme provisions and negative publicity against avoidance have helped ensure the market for aggressive tax planning has all but disappeared.
Against that backdrop, planners have a positive message to deliver on the tried and tested strategies that can be deployed, including tax-efficient pensions, Isas, enterprise investment schemes and venture capital trusts, collective investments and bonds, as well as the wide range of IHT plans, to name just a few.
None of these, used in the way the legislation intended, are subject to any threat from the latest swathe of anti–avoidance provisions.
But one final note: the chancellor made it clear that, were the economic position to change materially over the next few months (no prizes for guessing what could cause this to happen), then next year’s Spring Statement might be upgraded to a “full fiscal event”. In other words, another Budget.
Tony Wickenden is joint managing director of Technical Connection. You can find him Tweeting @tecconn