This week’s budget did not reveal many surprises. UK economic growth projections for the current and next few years have been reduced and any increase in spending or additional tax breaks have come as a result of savings made, further Government department cuts or additional levies. As is the fashion these days a number of the measures were either leaked or announced early. So who has come out on top?
Obvious winners were house buyers, low earners and beer drinkers. To help stimulate the housing market, the Government is expanding the eligibility criteria for shared equity home ownership and providing additional funding for deposits on new build properties. The income tax personal allowance will be increased to £10,000 from 6th April 2014, up from the £9,444 that takes effect from the 6th April this year; additionally the flat rate pension scheme (£144 per week) will now take effect a year earlier in 2016.
The struggling pub industry will receive a boost as the cost of a pint will fall by a penny from Sunday 24th March, although there is no respite from the planned 2% above RPI (retail price index) increase in duty on wines, cider and spirits.
A clear statement was made that the UK is open for business. Companies will benefit from a further reduction in the main rate of corporation tax. The main rate will reduce as follows over next few years:
- 2013/14 23%
- 2014/15 21%
- 2015/16 20%
All business, particularly SMEs and Charities will benefit from the Employment Allowance; £2,000 will be deducted from their class 1 national insurance bill from April 2014.
Further measures to stimulate investment and benefit investors are the abolition of stamp duty reserve tax on UK shares quoted on the small company growth markets (e.g. Alternative Investment Market - AIM) and UK based collective investment schemes. Companies listed on AIM are usually smaller, newer firms than the larger more established firms you tend to find on the main London Stock Market. Collective investment schemes are investment funds, the type of investment you can hold in your individual savings account (ISA) or pension. Investment managers were liable for the stamp duty reserve tax when an investor sold units of the fund but usually passed this cost on to investors in the form of charges. These measures will take effect from April 2014.
The announcement on the changes to the Childcare Vouchers scheme came earlier this week increasing the financial support for working parents. The new scheme will support up to 20% of childcare costs up to £6,000 per child per year, for children under 12, and will be phased in from autumn 2015. Also tucked away in the budget statement is the consultation on moving Child Trust Funds into Junior ISAs. Junior ISAs generally offer a wider range of funds and can be more competitively priced than their predecessors. This could be another positive boost for encouraging savings.
Back in February the Government backtracked on increasing the inheritance tax (IHT) nil rate band. The planned reforms on social care will partly be funded by a freeze on the IHT nil rate band. The current nil rate band (NRB) of £325,000 will be in place until at least 2017/18. If the value of your estate on death is within the NRB no IHT is payable, anything above the NRB will incur IHT at a rate of 40%.
One final hidden gem, which may arouse the attention of some pension investors, is the proposal to consult on amending the pension investment regulations. “The Government will explore with interested parties on whether the conversion of commercial properties in high streets and towns into residential use can be encouraged...” We have seen residential property discussed as a potential investment before, but a change of policy led to its continued exclusion from pension portfolios. Will there finally be a change? Watch this space, we will keep you posted as and when there are any further developments.
Head of Wealth Management