On Wednesday (25th November), the Chancellor of the Exchequer delivered his Autumn Statement and spending review. This event allows the government to outline its taxation and spending plans, based on economic projections through to the tax year 2020/21.
The Chancellor covered a wide range of issues. Below we provide comment on news relevant to savers and those in retirement.
- Basic state pension updating
- New single state pension amount announced
- Personal Allowance and Basic Rate Tax bands increased
- ISA subscription limits frozen
- Buy-to-let and second home stamp duty land tax
- Automatic enrolment timeline changes
- Pension tax relief – no changes, yet
- Pensions annual allowance changes
- Pensions lifetime allowance reduced to £1m
1. Basic state pension updating
The basic state pension is only payable to people who reach State Pension Age on or before 5 April 2016.
The basic state pension increases each year in line with the ‘triple lock’. The triple lock guarantees an increase each year by the higher of the rate of price inflation, the rate of wages growth, or 2.5%. The triple lock is likely to stay in place until the end of this parliament in 2020.
From April 2016, the basic state pension will rise to £119.30 a week from its current level of £115.95 a week. This represents a rise of 2.9% in line with wage inflation, this being the highest of the three triple lock measures.
From 6 April 2016, a new state pension will be introduced. This will combine the basic state pension and additional or state second pension (formerly the state earnings-related pension scheme) into one payment.
2. New single state pension amount announced
The amount of the new state pension will be £155.65 a week.
From April 2016, the basic state pension and the additional pension, which is also known as the state second pension or SERPS (state earnings related pension scheme), will be combined into one single payment.
Anyone who reaches state pension age after 6 April 2016 – that is, men reaching age 65 and women reaching age 63 on or after that date – will receive the new state pension.
Everyone qualifying for the new state pension will receive a ‘starting amount’, which may be more or less than the amount of the new state pension.
People whose starting amount is greater than the new state pension will see their pension increase each year in line with inflation, but won’t be able to build up any new entitlement.
People whose starting amount is less than the new state pension will be able to build up further entitlement by earning additional National Insurance credits.
3. Personal allowance and basic rate tax bands increased
From 6 April 2016, the personal allowance – the first part of your taxable income on which you pay no tax – will increase from £10,600 to £11,000.
The band of taxable income on which basic rate tax is paid will increase from £31,785 to £32,000 on 6 April 2016.
This means that someone will have to have taxable income of £43,000 in the next tax year (2016/17) before they start paying higher rate tax.
4. ISA subscription limits frozen
ISA limits usually increase each year in line with the consumer price inflation (CPI) figure for September. The government can, of course, override these normal increases as they did in July 2014 when raising the limit by £3,480 from £11,520 to £15,000.
However, in this Autumn Statement, the government has decided to freeze the ISA allowance at £15,240 and Junior ISA allowance at £4,080 for 2016/17.
5. Buy-to-let and second home Stamp Duty Land Tax (England, Wales and Northern Ireland only)
The government plans to increase the rate of Stamp Duty Land Tax (SDLT) payable on purchases of buy-to-lets and second homes in England and Wales. This will take effect from 1 April 2016 and be charged on any properties purchased for £40,000 and above.
The new rates of stamp duty will not apply to the purchase of caravans, mobile homes or houseboats.
The rates will be as follows:
|Property purchase price
||Rate of Stamp Duty Land Tax
| Up to £40,000
| Next £85,000 (the portion from £40,000 to £125,000)
| Next £125,000 (the portion from £125,001 to £250,000)
| Next £675,000 (the portion from £250,001 to £925,000)
| Next £575,000 (the portion from £925,001 to £1.5m)
| Excess over £1.5m
Scotland has its own Land and Buildings Transaction Tax.
6. Automatic enrolment timeline changes
Everyone who is employed and eligible will be automatically enrolled into a pension by 2018, with current minimum contributions set at 1% from the employer and 1% from the employee (before tax relief).
These rates were due to rise to 2% from the employer and 3% from the employee in October 2017 and again to 3% from the employer and 5% from the employee in October 2018.
These two increases will now be put back to 6 April 2018 and 6 April 2019 respectively.
7. Pension tax relief – no changes, yet
As expected, there was no announcement on pension tax relief, but the Autumn Statement document confirms that an announcement will be made at the March 2016 Budget.
8. Pensions annual allowance changes
Although this measure was first announced in the 2015 Summer Budget on 8 July, it’s worth a reminder that these new rules take effect on 6 April 2016. They only affect people with both incomes of £150,000 or more including total (employee plus employer) pension contribution, and income of £110,000 or more, net of total pension contributions.
9. Pensions lifetime allowance reduced to £1m
The government announced this change in the March 2015 Budget, but it is worth considering whether you might be affected. This affects the maximum amount that people can withdraw from their pension tax efficiently. The current cap of £1.25m will reduce to £1m from April 2016.
If you think any of these changes may affect you, please do not hesitate to contact one of our planners here at FMB.