There were few surprises of relevance to your retirement planning in yesterday’s Autumn Budget
The main previously-unannounced change – and a welcome surprise for us all – is the earlier than planned rise in both the personal allowance and the higher-rate threshold.
Personal Allowance & Higher-Rate Threshold
The Chancellor defied expectation to delay the rise to the personal allowance and higher-rate thresholds, instead raising them a year earlier than promised. The personal allowance, which is the amount of money you can earn before paying income tax, will rise by £650 from £11,850 to £12,500 from April 2019. The higher-rate threshold, which is the amount you can earn before paying 40% income tax, will rise by £3,650, from £46,350 to £50,000 from April 2019 – a year earlier than planned.
At last, some nice round numbers.
Capital Gains Tax
Capital Gains Tax is set to increase from £11,700 to £12,000 from April 2019.
State Pension to Increase by 2.6%
As previously announced, the state pension will increase by 2.6% from 6 April 2018. With CPI inflation of 2.4% in September 2018 and average earnings of 2.6%, the government has used average earnings to uprate the state pension under the government’s ‘triple lock’ guarantee. Both the pre-April 2016 basic state pension and the new state pension are protected by the triple lock guarantee. It means the state pension rises each year by the greater of annual price inflation, average earnings growth or a guaranteed 2.5% minimum.
Those who are entitled to the full new single-tier state pension will see their payments increase by £4.25 per week, taking the weekly amount from £164.35 to £168.60. New state pensioners will be £221 better off by the end of the 2019/20 tax year, with annual income increasing from £8,546.20 to £8,767.20 a year. The basic state pension will rise by £3.25 per week (from £125.95 to £129.20 per week). This will translate into an annual boost of £169 a year with total annual income rising from £6,549.40 to £6,718.40.
Pensions Lifetime Allowance
Not new news, but the pension lifetime allowance has been set at £1,055,000 for 2019-20. You can save as much as you want to in your pension during your working life – but if it exceeds a total amount (the lifetime allowance), you could be hit with a hefty tax charge. The graph below shows how the pension lifetime allowance has changed over recent years.
It was expected that there would be a further reduction in the pensions annual allowance, but this wasn’t the case. The annual allowance system works by permitting individuals to contribute up to £40,000 into a pension and receive income or pension tax relief on those contributions.
A new annual allowance cap of £30,000 had been anticipated, but this may have penalised savers in defined benefit (DB) pensions, particularly those in public sector schemes such as the NHS pensions and Teachers’ pensions.
Pensions Dashboard Update
The Budget document also confirmed that the state pension will appear in a soon-to-be launched pensions dashboard – an online portal that will allow you to see all of your pensions in one place. And the government will launch a consultation to find ways to help more self-employed people save into a pension.
The government is also clamping down on pension scammers by bringing in a ban to pension cold-calling.
Junior Isa Allowance
The Junior Isa is a good option for saving for grandchildren. The allowance will increase in line with CPI inflation from April 2019 to £4,368. This follows a rise earlier this year, when the allowance increased to £4,260 in April following the Autumn Budget 2017.
Junior Isas are tax-free savings accounts for under-18s. They can be opened by parents or guardians of children born on or after 3 January 2011, or before 31 August 2002. Money placed into a Junior Isa can be accessed once the child turns 18. After this point, it will become a full Isa subject to the adult threshold of £20,000.
NS&I Premium Bonds
Finally, the Chancellor announced that NS&I will now allow people other than parents and grandparents to gift premium bonds to a child. In addition to this, the minimum investment for premium bonds has decreased from £100 to £25.
A new premium bonds app will be launched as well to help make ‘saving with NS&I easier than ever’. Instead of paying interest like a traditional account, each premium bond is entered into a monthly prize draw and winners are selected at random by NS&I. Premium bonds offer the potential to win tax-free prizes of between £25 and £1m every month. NS&I is backed by the Treasury, which means that your money is 100% safe.
We will take account of all of the above changes when planning for you, but if you have any questions relating to the budget, please get in touch.