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Press Comment: Budget predictions and analysis from Quilter

05/10/2018

If you are looking for Budget predictions and analysis, please see the following commentary from Quilter experts:

  • Jane Goodland, corporate affairs director, highlights the challenging backdrop
  • Jon Greer, head of retirement policy, discusses pension tax relief and rules around pension transfer made while someone is in ill-health
  • Rachael Griffin, tax and financial planning expert, comments on social care, savings and taxation

Jane GoodlandJane Goodland, corporate affairs director:

Brexit is looming and we still don’t know whether it will bring trick or treat. The entire country still has no notion of what any future deal might look like or if indeed there will be a deal at all. Phillip Hammond meanwhile has the unenviable position of trying to craft a budget that manages expectations as the Prime Minister calls the end of austerity, while taking into account the huge uncertainty on our horizon and all the while trying to make sure that the boat is not further rocked. No easy task.

The Chancellor’s red briefcase has not been as steady as many anticipated. He’s swiftly gained a reputation for numerous u-turns. In this budget he’ll need to prove that his policies are well thought out, costed and will not lead to yet more headlines of him being as changeable as the weather. While he’ll be keen to keep to simple tinkering around the edges, he also needs to find a magic money tree to fund the NHS. The chancellor is probably wishing he could just dress up as anyone else for Halloween.

 

Jon GreerJon Greer, head of retirement policy:

While we thought the perpetual pre-budget commentary on pension tax relief reform was finally losing momentum, a recent Treasury Committee report suggested government give ‘serious consideration’ to replacing the lifetime allowance with a lower allowance and introduce  a flat rate of tax relief.

The idea of fundamental reform is unlikely while Treasury desks are battling the beast of Brexit, although it is possible they will look to do it in stages. That’s not to say the chancellor won’t knock on the door of pensions hoping to find a treat. The easiest and perhaps most likely way for Hammond to fill his boots is by lowering the pension annual allowance to £30,000.  

With the Chancellor under pressure to pull some bigger tricks to fund the NHS, he shouldn’t forget that ghosts can sometimes come in handy. Recent figures have shown gross pension tax relief is projected to be £38.6 billion, so it’s not hard to see why Hammond is eyeing it when he needs to find extra money. However, rather than arbitrary cuts to allowances, it makes more sense to target outdated factors. HMRC currently requires defined benefit (DB) pension schemes to multiply the annual pension by a factor of 20 when calculating the capital amount to be assessed against the Lifetime Allowance.  This figure was based on the then view of that the cost of providing a pension of £1 a year was approximately £20. This then led to the original £1.5m lifetime allowance set back in 2006 by Gordon Brown. To allow people to plan for their future, Brown said the allowance would increase every year to reflect inflationary increases, a promise that was kept for five years. However, the conversion factor has not been touched meaning it is now vastly out of date with the current transfer values on offer and has also meant there is a discrepancy in tax treatment towards defined contribution and DB pensions. Changing the conversion factor would arguably rebalance the current discrepancy.

Despite all the updates to the pensions systems over the past number of years, many ghosts still haunt the infrastructure. Inheritance rules remain off kilter with pension freedoms. Under the current rules, if a pension transfer is made while someone is in ill-health then there is a risk that HMRC will challenge the IHT-free status of the death benefits if the person passes away within two years of the transfer. This tax treatment creates an unnecessary restriction for those with impaired life expectancy and risks punishing their families by subjecting pension assets to unnecessary IHT.

 

Rachael GriffinRachael Griffin, tax and financial planning expert

Social Care

The social care crisis is another ghoul the government must face, however, it’s one that has scorned the Conservatives many a time before, including in the last snap election. The long-awaited green paper has filled many column inches in the past few months as rumours swirl over what solutions will be proposed. The battle cannot be put off much longer and if the government does not have a green paper to offer on budget day then it will need to be ready to answer questions.

The success of auto-enrolment in the pensions world has not gone unnoticed and so it makes sense that other savings issues, such as adult social care, would seek to tap into that success. If you put a social care contribution rate at 1% then a person who is aged 25 today on an average salary would have a pot of about £56,000 in personal provision.

If the system is to truly replicate pensions auto-enrolment then the government need to consider the universal funding it can offer, similar to the state pension, and how it would fund it. A cross-party group of MPs has suggested a social care premium paid by people aged 40 and above. This could build a pot of money that would fund a set universal benefit of a certain amount a week for those that need care. The money from this premium would have to be held in a ring-fenced fund so that taxpayers would be confident this money will not end up in a government slush-pile of funds.

The success of the pension system so far has been in part thanks to clear signposting of how much people will get from the state. This will need serious consideration when revamping the social care system. The impenetrable complexity of current care benefits means people are at a loss how much they can get from the state and how much they are responsible for.”

NHS tax

The NHS is currently critically underfunded, which is why Phillip Hammond confirmed at party conference that there will be an increase in taxes to help supply the NHS with a £20 billion-a-year boost. The cost of caring for Britain’s ill has rocketed thanks to expensive technology and an ageing population and more funding is desperately needed. One idea, which could make the upcoming tax increase more palatable, is to show the increase separately to someone’s main taxes to illustrate that it’s earmarked purely for healthcare. Some argue that if it is clear what the money is being raised for the public is generally more sympathetic to it. However, the Treasury may rail against this idea as by ring-fencing taxes it is generally harder for the government to change its spending priorities and siphon taxes to meet other priorities such as crime or transport.

Inheritance tax

We do not expect any fundamental changes to inheritance tax as the Office for Tax Simplification are currently conducting a deep dive into inheritance tax and set to propose a package of remedies for simplification. Their report on simplification in two halves – with the first half pitted to be released prior to the budget and the second half set for the New Year.

Simplification of inheritance tax should not be a haphazard amendment of already complicated taxes. It needs to be a series of considered changes so that the public can appropriately plan for their futures.

Probate fees

The probate fee fiasco of last year has faded from memory. The flat rate probate fee of £215 (or £155 if using a solicitor) was being replaced with a tiered structure based on assets. The change will mean lower value estates are exempt from any charge, but the charge on estates which exceed £50,000 will increase – some quite dramatically. Probate fees need to reflect the cost of probate and should not be a stealth tax. The threat of the increase is still on the cards, with the government continuing to confirm an update will be in ‘due course’. If they want to introduce a probate tax then it needs to be labeled  as such, and go through the parliamentary scrutiny of a new tax.

Stamp Duty

The government has already announced its intention to increase stamp duty for overseas buyers. However, as always the devil will be in the detail and that is likely to be revealed in the budget.

The motivation behind the increase is sound, but government need to think through all the potential consequences. For instance British expats looking to move back home could be caught out as they are by definition non-UK residents.

ISAs

The magic of ISAs is they have an incredibly strong and effective brand but this has gradually been eroded by various additions which only serve to detract from their simplicity. Preferably in this year’s budget, rather than further tinker with these types of products, ISAs should be left alone or if anything, combined so that more flexibility is offered within a single ISA – the so-called Everything ISA. Reducing the amount of different types may help to iron out some of the odd quirks in the rules surrounding ISAs. For example, a 16 year old could have both a Junior ISA and a cash ISA, but not an stocks and shares ISA. Getting back to the ISA’s simple roots will help maintain its brand as a useful way to save tax free. At the very least let’s set an ISA allowance that is divisible by 12 to make regular saving even simpler.

Corporation tax

The Tory Party Conference revealed that keeping in businesses’ good books is of the utmost importance to the current government. Hammond took the opportunity to announce a package of measures to support businesses and we may see further tweaks to corporation tax to show Britain is open for business after leaving the EU.  If he’s feeling generous Hammond could look to massively decrease corporation tax in a bid to attract more overseas money to paint Britain as a favourable place for businesses to set up shop, despite there being some potential hurdles when it comes to exports and imports.

Scrap entrepreneurs tax relief

In the summer the Resolution Foundation called for the government to scrap Entrepreneurs’ Relief saying it was ‘expensive, ineffective and regressive’. When originally introduced the relief was estimated to cost around £200 million. Since then, this figure has mutated to an eye watering estimated £2.7bn. While scrapping this tax would go at least part of the way to funding the costs of the £20bn spending increase planned for the NHS, it may prove too controversial a move at a delicate time for the government. It is c

For more information contact

Alex Berry023 8072 626007741 151931alex.berry@quilter.com
Kathleen Gallagher023 8072 629307990 004932kathleen.gallagher@quilter.com
Tim Skelton-Smith02380 916 99807824 145 076tim.skelton-smith@quilter.com

Notes to editors:

About Quilter plc:

Quilter plc is a leading wealth management business in the UK and internationally, helping to create prosperity for the generations of today and tomorrow.

Quilter plc oversees £118.1 billion in customer investments (as at 30 September 2018).

It has an adviser and customer offering spanning: financial advice; investment platforms; multi-asset investment solutions and discretionary fund management.

The business is comprised of two segments: Wealth Platforms and Advice and Wealth Management.

Wealth Platforms includes the Old Mutual Wealth UK Platform; Old Mutual International, including AAM Advisory in Singapore; and the Old Mutual Wealth Heritage life assurance business.

Advice and Wealth Management encompasses the financial planning network, Intrinsic; Quilter Private Client Advisers; discretionary fund management business, Quilter Cheviot; and Quilter Investors, the Multi-asset investment solutions business.

The Quilter plc businesses are being re-branded to Quilter over a period of approximately two years:

• The Multi-asset business is now Quilter Investors

• Intrinsic to Quilter Financial Planning

• The private client advisers business is now Quilter Private Client Advisers

• The UK Platform to Quilter Wealth Solutions

• The International business to Quilter International

• The Heritage life assurance business to Quilter Life Assurance

• Quilter Cheviot will retain its name

This press release is for journalists only and should not be relied upon by financial advisers or customers.

Please remember that past performance is not a guide to future performance. The value of investments and the income from them can go down as well as up and investors may not get back any of the amount originally invested. Exchange rate changes may cause the value of overseas investments to rise or fall.

This communication is issued by Quilter plc.  Registered office: Millennium Bridge House, 2 Lambeth Hill, London EC4V 4AJ, United Kingdom. Registered number: 6404270.  Registered in England.