Fallout from the Autumn Statement

This year’s Autumn Statement contained no less than 59 measures, but made little difference to the government’s overall tax take.

The 2012 Autumn Statement was described in some quarters as three mini-Budgets, but this December Mr Osborne still found plenty to announce. Not all of what he said was new or unexpected, but there were a few surprises:

Income Tax The chancellor confirmed that in 2014/15 the personal allowance would rise by £560 to £10,000.  The basic rate band will shrink by £145 to £31,865, leaving the higher rate threshold just 1% higher next tax year, at £41,865. There is no change to the £150,000 starting point for 45% tax, nor the £100,000 threshold at which the personal allowance starts to be phased out.

One consequence of the increase in the personal allowance is that from April the phasing out of the personal allowance will cover a £20,000 band of income (£100,000 to £120,000). The effective marginal rate of tax in this band is 60% (48.75% for dividends), so it is best avoided.

There was news on the transferable tax allowance for couples (both married and civil partners), which is due to be introduced in 2015/16. This will only be available if neither party pays tax at more than basic rate. The transferable amount will start at £1,000 and will be uprated in line with the personal allowance. 

Capital Gains Tax (CGT) The widely leaked proposal that non-resident individuals who own UK residential property would have to pay CGT on their gains was confirmed, although it will only apply to gains accruing from April 2015. More significant in terms of the tax raised is the halving of the final exempt period for private residential relief to 18 months.   From 6 April 2014 this will limit your planning opportunities if you have more than one property. While the targets appear to be second home owners and buy-to-let investors, people going through a divorce could also be caught.

Pensions  Both the annual allowance and the lifetime allowance will be reduced from 6 April 2014, so it is perhaps unsurprising that the chancellor left pension taxation untouched. However, he did announce some changes on the state pension front:

  • The state pension age (SPA) is now likely to rise to 68 in ‘the mid-2030s’ and to 69 by ‘the late 2040s’.  At this rate, today’s 20 year old may eventually be facing a SPA of 70. 
  • If you reach your SPA before April 2016 when the new single-tier pension starts, you can top up your Additional State Pension entitlement by paying a new class of voluntary national insurance contribution, class 3A. However, the first of these payments cannot be made before October 2015. 

Investments  The ISA limit will rise by £360 to £11,880 in 2014/15, of which £5,940 may be invested in cash. There will also be a review of the availability of retail bonds with terms to maturity of five years or less as ISA investments.

Business Taxes  There were no changes to corporation tax rates, but the Chancellor did announce some help for small businesses through a number of changes to business rates. These included a restriction on the 2014 increase to 2%, the extension of the doubled small business rate relief to April 2015 and a discount of up to £1,000 in 2014/15 and 2015/16 for retail properties with a rateable value of up to £50,000.

Anti-Avoidance  There were 13 measures under the heading of ‘Avoidance, tax planning and fairness’ which the Treasury projects will raise £955m next tax year.