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UK Budget 2017 – Pension Transfers, Tax, SIPPs and QROPS


The UK Budget 2017 seems to have been mainly a non-event with stamp duty axed for houses under 300,00 GBP and some minor stimulus. It has increased income inequality and is insufficient to boost Aggregate Demand. The UK needs massive government spending in education, technology and infrastructure spending to boost productivity. We didn’t get it.

UK Budget 2017: Personal Tax Allowance

The personal tax allowance is the amount you are allowed to receive tax-free. Above this amount,you will start to pay income tax on your earnings.

In 2018, the personal tax allowance rises to £11,500 in line with inflation (the increase in the price of goods & services in the economy each year).

You only pay tax on any annual income you receive which is above this personal tax allowance threshold.

The rise in personal tax allowance will benefit higher rate payers by £340 a year compared to just basic rate tax payers who will be £70 better off and universal credit recipients who will be better off by just 50p per week.

So, this is a budget which will increase income inequality. This is a budget which enriches the wealthy.

Personal Income Tax Rates 2017/18

Income tax bands of taxable income

Income Tax BandIncome Tax RateTax Year 2016/17Tax Year 2017/28
Basic Rate20%£0-32,000£0-33,500
Higher Rate40%£32,001-150,000£33,500-150,000
Additional Rate45%Over £150,000Over £150,00

You can see the full UK tax table here.

National Insurance 2017/18

National Insurance will increase to £8,424, broadly in line with inflation. Again, the wealthy win here.

Taking account of NICs, a basic rate taxpayer will see an overall reduction of £101 (income tax reduction £70 and NIC reduction £31), and a higher rate taxpayer will see a net reduction of £236 (tax reduction £340 and NIC increase of £104). Those with income over £123,700 will see a net reduction of £96 (tax reduction of £200 and NIC increase of £104).

UK Budget 2017/18: Savings

Tax Free Savings AccountsTax Year 2016/17Tax Year 2017/28
Individual Savings Account (ISA) subscription limit£15,240£20,000
Junior ISA subscription limit£4,080£4,128
Child Trust Fund (CTF) subscription limit£4,080£4,128

uk budget 2017

UK Budget 2017/18: Wages

The living wage will rise from £7.50 to £7.83 an hour, just beating inflation.

Hammond unveiled what he said were the biggest increases in minimum wages for young people in a decade, which will boost the pay of working teenagers by between 15p and 30p an hour.

On further attacks on the working class, cigarette duty is increasing by the biggest amount ever, with a pack of cigarettes costing a whopping £10.40. Fortunately, alcohol duty has been froze except on high-strength beer and cider.

It added that the poorest third of households are set for an average loss of £715 a year by the end of the parliament, while the richest third gain an average of £185.

A think tank has found that the UK facing longest fall in living standards for over 60 years. 

The Resolution Foundation has said the British economy will be £42bn smaller by 2022 than we thought in March despite an extra £25bn in spending to prop up the economy.

It added that the poorest third of households are set for an average loss of £715 a year by the end of the parliament, while the richest third gain an average of £185.

The cumulative £3bn cost of the abolition of stamp duty for first time buyers could instead have supported the building of 40,000 social rented properties or around 140,000 homes through the government’s own Housing Infrastructure Fund.

The biggest winners are current property holders, whose property values shot up overnight.

UK productivity is now the lowest in the G7. We are over a third less productive than the Germans. Lack of broadband and infrastructure is lacking whilst job skills are poor.

Productivity slowed almost everywhere after the financial crisis. But the picture is especially dismal in Britain. Output per hour worked is still 2% below its pre-crisis peak; in the rest of the G7 group of rich countries it is 5% higher. The French could take Friday off and still produce more than Brits do in a week. Confounding stereotypes, Italians are 9% more productive than the Brits.

Britain’s workers are a bargain all the same, because their pay is so pitiful. Of the 15 initial members of the EU, only Greece and Portugal now have lower hourly wages. A British employee produces a fifth less than a French one, but he or she is more than a third cheaper to hire.

Productivity is rather mysterious, but the best bet for boosting it is to invest in skills and infrastructure. Overall investment was a paltry 14.5% of GDP at the last count, which is the lowest in the G20. This is a chronic problem: the country now lags behind Canada, Japan, France and Germany in the quality of its infrastructure, according to the IMF. Money could usefully be spent on better local transport. Britain’s roads are among the most congested in the EU. Why not invest in faster broadband (or even any broadband in some rural areas), housing and energy infrastructure.

In my opinion, the government should be offering a job buffer scheme, especially for school leavers. There are so many jobs they could be doing from construction to IT. Why not give local school leavers a chance to literally build their own community. I’m sure the Armed Forces could also do with a hand.

A new paper from the think tank group IPPR points out that if the chancellor used the Budget to advance cash so that the NHS could link pay to inflation for the next three years, nearly half the £1.8bn cost would come back to the Treasury in the form of lower welfare bills and higher tax receipts. Instead, the government are selling off NHS buildings to the private sector to raise cash.

The increase in the living wage pay to £7.83 an hour is welcomed, although by 2020 there will still be 6 million people earning less than the so-called national living wage, measured by what is needed to reach an acceptable standard of living.

UK Budget 2017/18 and Pensions

In April 2018 the “lifetime allowance” on pension contributions will increase by £30,000, from £1m to £1.03m. But, seeing this as the allowance was 1.8m in 2010, this is a woeful increase. The personal allowance will rise in line with inflation to £11,850 in 2018-19, meaning qualifying married couples can transfer £1,185 to the higher earner to cut their tax bill.

QROPS and pension transfers weren’t mentioned, but the 25% exit tax remains in place if you are moving abroad and you aren’t moving to Europe, Australia, New Zealand or Hong Kong.

Who avoids the 25% exit tax for QROPS?

Anyone moving to the European Economic Area (Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain or Sweden), Hong Kong, Australia or New Zealand

Who will pay the 25% exit tax for QROPS?

Anyone moving to the USA, Canada, Asia except HK, Latin America, Africa or anywhere else in the world not mentioned above.

You can read more about the 25% exit tax for QROPS here. Here is a list of the best places to retire to avoid the 25% exit tax.

Property

• Abolition of stamp duty for first-time buyers of properties up to £300,000
• Investigation into land hoarding by property developers
• Plans to build 300,000 homes a year

Shares in big house builders like Taylor Wimpey, Barratt and Persimmon all fell sharply during and after the  UK Budget 2017 speech as there was no planning reform. The process to get property built and get planning permission is still too slow.

Energy

• Tax break for transfers of North Sea oil and gas fields
• £400m investment into electric car charging network

The UK Budget 2017 was kind to the energy sector. But, whilst the working and middle classes pay their fuel taxes to help the environment, the big oil & gas corporations have been gifted a tax break.

Transport

Philip Hammond has revealed he’s putting up road taxes on older diesel cars to fund a £220m clean air fund, although fortunately, vans won’t be affected. However, many people bought diesel cars because historically they were cheaper on fuel consumption, although even that is not the case anymore. You can read more about the charges here.

Under the new rules following the UK Budget 2017, only electric cars under £40,000 will avoid car tax. From Tesla, only the Model S is available at this price and currently not available in the UK as yet.

The young persons railcard, currently available to under-27s, is to be extended. The “millennial card” will extend the 30% discount to those under 31. Further details will be announced after negotiations with rail companies.

 

Tech Companies

• Tax to be paid on royalties relating to UK sales sent via tax havens

The Google tax has finally arrived, but is muted. This is unlikely to have much of an impact on large digital firms. The Chancellor admitted the measure would bring in just £200m per year. It requires worldwide co-operation which isn’t likely to come anytime soon.

HMRC will also crack down on the £1.2bn of VAT fraud carried out on platforms like eBay and Amazon.

Education

£27m to improve Maths teaching in 3,000 schools. As part of the plan, schools get an extra £600 for every additional pupil who takes A-level or Core maths.

There was little in the Budget on education, so I drilled down to the numbers. Spending on education only increased 1.1% which doesn’t even keep up with inflation. CPI was up 3% year-on-year in November.

This is a big deal and here is why. Research and development spending is most effective at stimulating productivity when it is funnelled through universities, according to research by two academics, Jonathan Haskel and Gavin Wallis. At £2.8 billion a year ($4.2 billion), university research accounts for a tiny proportion of government spending, but it has been cut by 5% in real terms.

Grenfell Tower

Kensington and Chelsea council will get an extra £28m for mental health services, regeneration support for the surrounding areas and a new community space for the Grenfell United group.

The Rich

Despite the Panama Papers and the Bermuda papers, there has been little in the Budget to address these issues.

After the disclosure in the Paradise Papers that the F1 champion managed to avoid paying taxes on a private jet, Hammond announced that air passenger duty on those travelling by private jet would increase by £47. “Sorry, Lewis,” Hammond said as he announced the plan. But he did nothing to end the Isle of Man scheme that helped Hamilton avoid tax, which is subject to a review by HM Revenue and Customs.

If you are rich, a 47 quid tax increase affords you an apology from the Chancellor of the Exchequer and I think that says it all about this Budget!! ‘Til next year…

Oh… and I haven’t even mentioned the £40 billion Brexit divorce bill.. ’til next time.

UK Budget 2017 - Pension Transfers, Tax, SIPPs and QROPS by

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