We were warned there would be no big giveaways in chancellor Philip Hammond’s first – and last – Spring Budget delivered today. And so it proved, with none of the grand tax surprises of previous Budget speeches.
Mr Hammond had a nasty surprise for the self-employed and larger investors. Anyone affected will have to take care or they could find themselves significantly worse off.
In the absence of any other major announcements, however, we would urge you to make sure you are
making the most of the tax allowances that already exist. With just four weeks left until the end of the tax year, time is running out to use what, in some cases, are very generous allowances.
Guy Foster, Head of Research at Brewin Dolphin, says:
“When Mervyn King took over at the Bank of England he had ambitions to make monetary policy boring. What followed was quantitative easing and the most dramatic change in economic management since the collapse of Bretton Woods.”
When we reported last year on Philip Hammond’s first Autumn Statement he suggested budgets would be pretty boring for the next 18 months as he moved to a situation in which the Budget would be announced in the autumn for implementation in the spring – meaning an end to dawn raids by chancellors with measures being implemented from midnight.
“Mr Hammond vastly exceeded the, now Lord, King in his ability to deliver boring policy. There was very little of the political posturing and radicalism of his No 11 predecessor as well. Instead this Budget really does show a government “sticking to its plan” (a phrase Mr Hammond was happy to inherit from George Osborne).
“The fiscal projections from the Office for Budget Responsibility (OBR) were a little weaker than most of us had anticipated. They show debt to GDP peaking next year before declining, although unfortunately similar projections in the past have failed to be borne out.
“Not that Mr Hammond had any intention of spending the modest headroom which changes to the OBR’s forecasts have afforded. He used it to bolster his achievement of his fiscal objectives (reducing the structural deficit, reducing debt to GDP and abiding limits on welfare spending). His remaining objective of balancing the budget as soon as possible within the next parliament remains enigmatic. That suggests to us that the government is confident on its strategy, is not planning an election, and believes it can stave off the challenge of Scottish independence for the foreseeable future.
“What the chancellor has done is to pause the policy conveyor belt of recent years allowing a period of
clarity for households and businesses. This was evident throughout his Budget but particularly for savings. We still expect to see big changes to pensions saving, possibly as soon as the first Autumn Budget later this year.”
Tax year end checklist:
With just four weeks to the end of the tax year now is the time to make sure you are making the most of this year’s tax allowances. A conversation with an adviser can ensure you are making the most of all of your tax breaks. These include:
ISAs and pensions:
If you don’t use your ISA allowance (currently £15,240), you lose it forever. Pensions also have an annual allowance (currently £40,000), but this isn’t necessarily lost at the end of the tax year, as you can ‘carry forward’ any unused allowance from the three previous years. That said, you can’t get tax relief on more than you earn, so for most people, putting money aside each year is likely to be the best way to benefit from the available tax breaks.
Capital gains tax:
One allowance that many investors forget is their ‘Annual Exempt Amount’ for capital gains tax (currently £11,100). You don’t pay tax on any profits from the sale of eligible assets (such as shares you hold directly) until you’ve gone over this level. If you have a large portfolio of shares outside an ISA, it may be worth using as much of this allowance as possible each year – by selling assets that have risen in value – or you could be storing up a large exposure to capital gains tax for the future.
Junior ISAs and pensions for children:
You can also save tax-efficiently for your children and grandchildren. For a start, there’s the annual exemption on inheritance tax, where you can give away £3,000 each year and it falls immediately outside your estate.
With a Junior ISA, you can put aside up to £4,080 each year (£4,128 from 2017/18 tax year) and there are the same tax benefits as an adult ISA. You just have to remember the money is locked away until the child is
18 at which point they can start withdrawing from it.
Children’s pensions are even more long-term. People with no earnings can still get 20% tax relief on pension contributions of up to £2,880 per year (which boosts the value to £3,600). This includes children. They won’t be able to access the money until they are 55, when it will boost their retirement savings.
What to do now
Whether you are affected by the Budget or want to
make the most of available allowances before the end of the tax year, our specialist financial planners can give you the specific guidance you need – please call us at your local Brewin Dolphin office and we will be delighted to help you.