Comment on pension policy – Jon Greer, head of retirement policy, Old Mutual Wealth:
“A dull and boring budget on pensions is highly unusual after so many years of change. Pension savers can breathe easy – for now. Changes to pension tax relief will continue to loom large for years to come so long as Government borrowing remains at all-time highs and spending demands ask ever more from the Exchequer.
“The Chancellor’s reprieve may have a lot to do with the Government’s bandwidth outside Brexit. But it may also be simply because right now it’s unclear whether the total cost of tax relief is increasing or decreasing.
“The most recent statistics published by HMRC were for the 2015-16 tax year, and so don’t take into account the recent spate of changes we’ve seen: the reduction in the lifetime allowance to £1m, the tapered annual allowance that took effect from 2016-17 and the drop in money purchase annual allowance, which will take effect from 2017-18. We also still don’t know the full effect of automatic enrolment, and of continuing to fund defined benefit schemes, not just for ongoing accrual, but for deficit reduction. Of course the size of deficits in defined benefit schemes are hotly contested. So at this point in time the arguments for tax relief changes may not have been strong enough.
“The increase in the personal allowance to rise with inflation means that more workplace pension savers may fall into a tax hole. If workers are auto-enrolled into a workplace pension scheme that operates tax relief through the “net pay arrangement” system, but have earnings below the new income tax threshold of £11,850, they will not get tax relief because they are under the tax threshold.
“The Department for Workplace Pensions has previously estimated that around 280,000 who earn between £10,000 and the current personal allowance of £11,500 would not benefit from tax relief on their contributions if enrolled in a pension scheme that uses a net pay arrangement.”
*The fourth wave of Retirement Income, was conducted by YouGov, who surveyed over 1,500 UK adults between the ages of 50 and 75.
Comment on new proposals to reduce the incentive for non-residents to invest in UK land or commercial property – Rachael Griffin, tax and financial planning expert, Old Mutual Wealth:
In a consultation paper issued today alongside the Budget, the Government will look to change the way commercial property and land in the UK is taxed when it is disposed of by a non-resident.
Under the current rules, non-residents are exempt from Capital Gains Tax (CGT) on disposals of UK land and UK commercial property. Under the new proposals, the CGT exemption is removed. This brings land and commercial property into line with UK residential property; where the CGT exemption was removed back in 2015.
The rules will apply to purchases made both directly and indirectly through overseas corporate structures (known as enveloped dwellings).
“The proposals have come at an interesting time, and may suggest the Government wants to deter people from switching their residential portfolio holding into commercial property to gain a tax advantage. It was only a couple of years ago that the CGT exemption on residential property was removed, and only this year that the inheritance tax exemption on residential property through an overseas corporate structure was removed. The new rules will help avoid any shift in behaviour towards selling residential property and buying commercial property and will level out the taxation between UK residents and non-residents.”
Comment on council tax on empty properties – Rachael Griffin, tax and financial planning expert, Old Mutual Wealth:
“Today the Chancellor revealed a potentially costly tax hike for second home owners that leave property empty, in a further effort to discourage people from treating housing as a commodity. It will raise only a negligible amount of money, just £5m a year, but is designed to encourage people to get houses into use or invest their capital outside the housing market.
“In recent years we have seen a series of measures designed to tip the scales in favour of first time buyers, from reforms that have hurt buy-to-let investors to the Help To Buy savings boost for first time buyers, and now today’s stamp duty cut for aspiring homeowners.
“Handing local authorities the right to increase the maximum empty home premium to 100% is another sign of the government’s thinking around the housing market. With the average Band D council tax bill coming-in at around £1500 a year, this could prove costly if councils take the opportunity to double the charge for second home owners.
“For those leaving a property empty in the hope they will benefit from house price increases, this could significantly increase the cost of holding that investment.
“Those affected will be thinking about whether holding property continues to be right for them and may want to think about investing instead in more conventional savings products like Isas and pensions. Both offer attractive incentives, with pension tax relief continuing to offer a generous savings boost, and the Isa allowance remaining at a fairly generous £20,000 a year.”
Maths funding won’t address financial illiteracy – Jane Goodland, responsible business director, Old Mutual Wealth:
“There’s a risk that we think being competent with numbers equates to being good with money. Sadly things aren’t that simple, and government need to invest in ensuring everyone has basic numeracy and financial skills, as well as providing education platforms for gifted young mathematicians.
“Politicians are at risk of slipping into the mistaken belief that being competent with numbers equates to being good with money. Sadly things aren’t that simple, and government need to invest in ensuring everyone has basic numeracy and financial skills, as well as providing education platforms for gifted young mathematicians.
“Today the Chancellor announced a package of funding for maths education, but it will do little to boost financial capability among young people. The focus on boosting numeracy echoes a recent government response to a House of Lords paper on financial inclusion, in which it pointed to improving maths as the best route to boosting financial inclusion and capability and dismissed the case for including financial education on the primary curriculum.
“While basic numeracy skills are helpful for budgeting and saving, many of our financial habits are in fact motivated by our attitudes and behaviours learned at a young age, and not by our technical competence with numbers. For example, the recent FCA Financial Lives survey found widespread financial illiteracy, which is largely unconnected to educational background.
“In fact, evidence suggests that if young people can grasp the basic principles of healthy financial wellbeing, like budgeting, saving for the future and avoiding debt, they are more likely to be financially savvy. So to make a dent in the UK’s financial illiteracy epidemic, we need government to focus on the behaviours and principles of good financial management taught to young people.
“As part of the UK’s Financial Capability Strategy the What Works Fund, set-up by the government’s Money Advice Service, is funding research to measure the effectiveness of over 50 initiatives across the country designed to boost financial capability. This includes the KickStart Money programme of financial education, which aims to prove the case for financial education to be taught as part of the primary school National Curriculum. We urge the government to look at the evidence made available through the What Works Fund and make financial education part of the primary national curriculum, giving every young person the foundation financial knowledge needed, in addition to numeracy skills, in order to make well-informed financial decisions in adulthood.”
Government hints at future IHT reform – Rachael Griffin, tax anf financial planning expert, Old Mutual Wealth:
“HM Revenue and Customs today unveiled its own commissioned research report looking at how the inheritance tax system is functioning. It provides a further hint the IHT system is in the crosshairs for future reform.
“The IHT system is not straightforward and has a number of legacy clauses and exemptions that government may seek to reform.
“HMRC’s research focussed on business property relief (BPR) and agricultural property relief (APR), likely seeking to see if the allowances were being misused. However, the report notes the majority of people are using the exemptions as they are supposed to be used, to allow them to keep the business or farm in the family, without having to break it up or sell some or all of the assets to pay an inheritance tax bill. Indeed, many business-owners feel that their businesses would likely be sold to cover IHT bills if the relief were not available.
“Alongside today’s report, the Office for Tax Simplification last month published its plan for the year ahead and pointed to IHT as an area ripe for reform. One of the best examples of over-complication in death taxes is the residence nil rate band, which is incredibly complicated and causes a lot of confusion. An easier method to achieving the same goal would be to simply raise the standard nil rate band amount to £1m.
“For individuals and families that are thinking about estate planning, it is important for them to keep an eye on whether IHT rules do change and make sure they take advice from a professional financial planner to ensure they are making the right arrangements in order to pass on assets to their family tax efficiently. The HMRC report published today shows very few people properly understand the reliefs and exemption available, so it is crucial to take professional advice.”
Comment from Richard Carter, Quilter Cheviot:
“Ultimately, we expect this Budget to have a bigger impact politically than it will on the economy – in fact, there was precious little in the budget for investors and markets have mostly responded with a collective shrug. The key issue facing the economy is obviously Brexit and the challenge for the government is to try and break the talks with the EU out of their current impasse. Until there is more certainty on this front, we expect the UK to continue to lag behind other leading economies, particularly Europe and the US.
“The Chancellor’s job today was not made any easier by the latest growth forecasts from the OBR. They slashed their estimates for GDP growth in the coming years on the back of weaker productivity assumptions as well as the obvious Brexit uncertainty. Some of the new forecasts are even gloomier than the market consensus and, remember, this comes at a time when the rest of the global economy is enjoying strong and synchronised growth.
“However, despite the prospect of slower deficit reduction in the years to come, Hammond did find some additional funds for infrastructure, the NHS and contingency planning for Brexit. The Chancellor will hope that his measures for the housing market make the headlines, rather than the downgrades to economic growth.”
Comment from Richard Buxton, Old Mutual Global Investors:
“Automotive quips, support for new, cleaner car technologies, and some deft salesmanship from the Chancellor aside, this Budget was motivated more by political concerns than economic ones. For investors, opportunities remain, but now is the time to be highly selective
- “Some 364 days ago, I sat down to pen my thoughts on Philip Hammond’s first – and last – Autumn Statement. Excerpts from the introductory paragraphs read as follows:
- It is, arguably, possible to have too much excitement in life, and so for some of us at least, the relatively sober nature of the 2016 Autumn Statement will have come as welcome relief […]
- The Chancellor was of course keen to point to IMF forecasts showing that the UK remains on track to be the world’s fastest growing major economy […]
- But his introductory remarks also quickly turned to the UK’s well-documented productivity gap, challenges in the housing market and regional disparities.
“So, what has changed? Clearly, the claim can no longer be made that the UK is on track to be the world’s fastest growing major economy.
“Some might be tempted to blame this entirely on a challenging start to the Brexit negotiations, and these have clearly been a headwind. In reality though, the deterioration in the outlook for GDP growth is itself more a function of the ongoing challenge of the UK’s lamentably weak productivity, as reflected in today’s downgrade in the productivity outlook by the Office for Budget Responsibility.
“But, despite these headwinds, the muted initial reactions of both the pound sterling and most areas of the UK stock market show that investors were, by and large, correctly anticipating a “balanced” budget of the type expected from a Chancellor known for his cautious approach.
“There were once again few, if any, big surprises, Hammond’s ability to announce crowd-pleasing giveaways being hampered by an obviously straitened economic outlook.
“A clear bright spot is the removal of stamp duty land tax for first-time homebuyers up to a property purchase value of £300,000, or on the first £300,000 of properties valued up to £500,000 in particularly expensive parts of the country. Indeed, I believe this should be a more effective mechanism to reinvigorate housing transaction volumes than the Help to Buy scheme.
“That said, I would have welcomed a more radical solution, perhaps targeting the clear challenge of the vast number of oversized and often unsuitable homes owned and occupied by members of older generations who would, in many cases, gladly “downsize,” were it not for the punitive costs of doing so.
“Autumn Budget 2017 has been called in some quarters “a Budget for Millennials,” and the housing measures announced today, in addition to a gimmicky new railcard scheme for the under 30s may well help improve the Tories’ dreadful poll ratings among the nation’s younger voters.
“In practice though, the housing measures, in addition to others such as the additional cash for the National Health Service, are designed more for their political appeal than for their potential to breathe new life into the UK economy.
“Meanwhile, the Bank of England continues to tread a challenging path as it attempts to convince the markets that it will pursue a policy of interest rate normalisation that would hardly be supportive for most businesses.
“From an investment perspective, my view is that this Budget changes very little. Hammond may have used a little sleight of hand (the reclassification of housing associations being an obvious example) to give himself a little headroom at this juncture.
“In practice, however, he appears to have kept the vast majority of his powder dry, cognisant that there may well be a time, as Brexit approaches, when more radical action is merited. In the meantime, and notwithstanding the Chancellor’s desire to “show the nation a good time,” those hoping to speed off into a glorious sunset may want to leave their driving apparel in the glovebox just a little longer.”