Our thoughts on some of the Budget measures
The Budget this year was delivered on a Monday, breaking with recent tradition of a Wednesday speech. Apparently the last Monday budget was in 1962. For a piece of budget trivia I checked out the other days of the week. Tuesday is the long-term favourite with 73 budgets delivered since 1900. Wednesday is next at 27 and Monday on 17. There have only been 8 Thursday budgets, the last one in 1931 and, since at least 1900 (and probably before then too), no Chancellor has spoken on a Friday. “Never on a Friday”, isn’t that a song?
The budget itself was certainly far from trivial. There were many notable announcements, from the new Digital Services Tax – a 2% levy on the UK revenues of certain digital businesses – to billions more for the NHS, defence, schools, the regions (especially Northern Ireland) and the beleaguered high streets. Oh yes, and potholes – my favourite every year.
But, aside from the leaked, sorry, pre-announced £12,500 personal allowance and £50,000 higher rate tax threshold, there was rather less on personal finance matters. And not even one mention of the word ‘pension’ – which for many is something of a relief since pensions have been the low hanging fruit of many a recent budget.
The ISA allowance is again frozen at £20,000 (although the Junior ISA subscription will increase to £4,368). I fear that the very round nature of this number will doom it. The Stakeholder Pension limit, where there are no relevant earnings, was introduced back in the 1990s at £3,600 and has stuck there ever since. The Inheritance Tax free annual gift allowance hasn’t shifted from £3,000 since the early 80s.
On Capital Gains Tax (CGT) there was no change, beyond the standard inflationary increase to £12,000, other than how it applies to private residences. Private Residence Relief, which basically means you don’t pay CGT on your main home, will be changed such that the final period of exemption will be reduced from 18 to 9 months. In other words, if you move out and don’t sell, you will now have only 9 months automatic exemption from CGT (unless you qualify as disabled or move into a care home).
And, while on the subject of CGT, qualification for Entrepreneurs Relief (which applies a 10% CGT rate for entrepreneurs), will require a minimum 24 month period of share ownership, up from 12 months.
As I say, I struggled to find much more from a personal finance angle. The Chancellor was keen to trumpet the higher Personal Allowance and higher rate tax thresholds that have come one year early, but failed to tell us of changes to National Insurance. The NI thresholds have also been increased. On earnings up to £46,350 this year, employees pay NI of 12% and 2% on amounts above that. But, from next year, earnings up to £50,000 will be subject to the 12% rate.
So, whilst the income tax on earnings up to £50,000 will reduce, the NI will increase. The net result for someone on a £50,000 salary is £730 less tax but £365 more National Insurance. Still better off, but by half what was imagined.
Nevertheless, the fact is that the vast majority will be better off next year to some extent, but it does at least show that you can never get it right for everyone, no matter how much “Fiscal Phil says Fiscal Rules OK”. And yes, that is a direct quote.
Philip Chandler FPFS, CFPTM, Chartered MCSI
Chair of Aspinalls Technical and Investment Committee