Backing away from plans to balance the books, the Chancellor instead spent his windfall and committed to running a deficit of around 1% of GDP for the next five years – with giveaways for the NHS, schools, defence, universal credit, and even for fixing potholes.
There were no changes of any real note to pensions or ISAs, income tax, capital gains tax or inheritance tax, other than that the personal allowance and higher rate threshold will be increased to £12,500 and £50,000 respectively from next tax year. This is one tax year earlier than promised in the Conservative manifesto and a tax cut of nearly £3 billion a year.
Given the political backdrop of Brexit and a very fragile working majority in the House of Commons, radical changes to personal taxation – whether to tax-free cash, the system of tax relief on pension contributions or inheritance tax – were always unlikely.
Yet even less radical measures were given a wide berth. Recent comments from the Chancellor himself about the “eye-wateringly high” cost of pension tax relief had many on false alert for further “salami slicing” of the standard annual and lifetime allowances. Instead, the former was left untouched, and the latter will continue to increase in line with inflation, to £1,055,000 next tax year.
The eagerly awaited Office of Tax Simplification report on the simplification of inheritance tax appears not to have landed on the Treasury’s desk in time for the brought-forward Budget, which contained no simplifying measures. More or less the only mention of ISAs was confirmation that the ISA allowance will remain at £20,000 next tax year.
Among the few changes of particular note from a financial planning perspective, the Government intends to slightly limit private residence relief from capital gains tax, by reducing the final months of ownership that are automatically exempt from 18 months to 9 months, and restricting lettings relief to those living alongside their tenants, both from April 2020 onwards. The Government will also consult on a stamp duty surcharge of 1% for non-resident buyers of UK residential property. For those who might be affected, a tax saving might be achievable by bringing forward planned property transactions.
One other measure, announced shortly ahead of the Budget, is that National Savings and Investments (NS&I) will link its Index-Linked Savings Certificates to the Consumer Price Index (CPI) measure of inflation (from each certificate’s next renewal date), rather than the typically higher Retail Price Index (RPI).
Finally, the OBR’s figures are based on an “average” Brexit deal being reached, and the Chancellor made clear that he reserves the right to upgrade the Spring Statement next year to a full fiscal event, or Emergency Budget, if necessitated by a destabilising exit from the European Union. That might not be as generous.
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