Danby Bloch: Examining the Autumn Statement small print

Danby Bloch white

Now the dust has settled on the Autumn Statement, it is worth taking a closer look to see how it has affected financial planning. George Osborne may have got lucky with some rosy estimates of his expected tax take and could well get away with his giveaways in tax credits and elsewhere. Or he could prove to have been excessively optimistic, in which case we will see higher taxes and more tax cuts in the years to come.

And if you think he does not do tax increases, think again. With the apprenticeship levy, he devised a whole new payroll tax and his enthusiasm for stamp duty land tax, both in the Autumn Statement and before that in July this year, seems to know no bounds.

Stamp duty 

Adding three percentage points to stamp duty paid when purchasing a buy-to-let property or second home will take the wind out of the sails of this market, at least after 31 March 2016. Taken on top of the summer blow to tax relief on interest to borrow for buy-to-let and new rules on wear and tear allowances this is bad news for the sector.

The Chancellor wants to encourage larger players into the residential rental market and will be consulting on exemptions from the new stamp duty reserve tax rate for corporate owners (who are not affected by the interest restrictions) and funds owning more than 15 properties.

So, watch out for a rush to buy rental properties before 1 April as investors race to beat the new higher charge. The trouble is the market will boom and the high prices that people are persuaded to pay will dwarf any 3 per cent extra stamp duty savings. Financial advisers can play a useful role in persuading their clients to avoid getting caught in the trap of overpaying for property in the panic to buy.

If the market starts to look overheated, as many think it will, advisers should caution determined buy-to-let clients to wait until the inevitable summer lull. Of course, the Chancellor could still wake up and smell the coffee, realise there will be a buying stampede and decide to increase the rate before the end of March.

Apprenticeship levy

The new apprenticeship levy will start in April 2017 and will be 0.5 per cent of employers’ payrolls. Employers will receive an allowance of £15,000 to offset against their levy payment, which will only be paid on payrolls in excess of £3m. Therefore, it will not affect smaller businesses. The tax will help the Chancellor balance his books by producing £3bn or more each year for the Exchequer. Large employers are already starting to squeal about this.

Tax credits

The abolition of welfare tax credits has, in effect, been postponed. However, the reality is that the new universal credit will take over in the next three years. The journey for claimants will be a little more gentle but the outcome of this process remains generally lower benefits.

Indeed, clients need to be aware that if they are ill or unemployed, or if a parent dies, the welfare state will probably pay out much less in benefits. Some advisers are unenthusiastic about recommending protection policies but such cover is now more necessary than ever.

Higher earners

An interesting point to note for tax planning is that the upper income limit for claiming tax-free childcare will be reduced from £150,000 to £100,000: another cost to having an income of just over £100,000. The other one, of course, is the withdrawal of the personal allowance between £100,000 and £122,000 (in 2016/17). It will now pay to plan with even greater care where a client’s income is hovering around that level. Salary sacrifice to divert income into pension contributions could be a very powerful planning tool in this context.

In the longer term, we should pay attention to a warning hidden in the blue paper published with the Autumn Statement, which says the Government is “very concerned” about the growth in salary sacrifice arrangements and is considering if any action is necessary. They will be watching the situation carefully.

Danby Bloch is chairman of Helm Godfrey