Autumn budget 2017. What’s the impact on investors?

Yesterday’s budget came and went with no changes to the main tax reliefs and allowances. This is almost unprecedented and represents good news for investors after years of governments tinkering with the rules.

Despite fears of changes to pension tax relief, the one change in the pension arena was to the lifetime allowance, which had already been promised. As originally announced in the 2015 Budget, the lifetime allowance will increase by £30,000 to £1.03m, with effect from April 2018.

However, whilst there were no major pension changes in this budget, it is more than likely that there could be in the future, particularly to higher rate relief. It makes sense therefore for higher rate taxpayers to continue to make the most of the current rules while they can.

The headline feature of the Budget was of course the immediate removal of stamp duty for first-time buyers when buying properties of up to £300,000. For properties costing up to £500,000, no stamp duty will be paid on the first £300,000. The new rules apply to first-time buyers living in England, Northern Ireland and, for a time, in Wales. The previous starting point for paying stamp duty in England was £125,000.

Whilst welcome news, it obviously does not help with the deposit, which represents the biggest up-front cost for first-time buyers. Moreover, if a couple are buying and only one is a first-time buyer, then they do not get the tax break. This differs from the Lifetime Isa rules, where either or both in a couple can be a first time buyer and use a Lifetime Isa bonus to purchase.

The new rules also do not help those trading up, or those downsizing who are put off by the stamp duty cost.

Another announcement will however benefit many entrepreneurs and SMEs. Before the budget, there were concerns that tax relief on venture capital trusts (VCTs) and enterprise investment schemes (EIS) could be restricted. Instead, the chancellor doubled the amount of investment allowed in the schemes. 

The current maximum annual limit is £1m, but this will now be doubled for investments in companies that are defined as ‘knowledge intensive’. In addition, the amount of investment that that such high-tech and potentially high-growth firms can receive through either an EIS or VCT has been doubled to £10 million.

However, the government is determined to prevent EIS investment allowances being used for investments in low risk companies and a new ‘risk to capital’ test will be introduced to ensure that tax reliefs in EIS, VCTs and also newer seed enterprise investment schemes (SEIS) are only used for genuine growth companies where there is a significant chance of investors losing their money.

Elsewhere, there were few financial changes. The 3% rise in the state pension in April 2018 was confirmed, amounting to £3.65 extra per week, whilst the personal allowance will rise from £11,500 to £11,850 and the higher rate threshold will rise from £45,000 to £46,350.

Other changes already pencilled in for next April and subsequent financial years remain, including the gradual process allowing people to pass on property to their descendants free from inheritance tax, the gradual reduction of tax relief on mortgage interest for buy-to-let landlords and the reduction of the tax-free dividend allowance from £5000 to £2000.

So, a couple of major headline grabbers aside, there was not much to excite or concern investors this time around. Perhaps more significant for investors was the downgrading of economic growth forecasts, with expectations for growth this year cut from 2% to 1.5%, and GDP growth expected to be as low as 1.3% in 2019 and 2020. Deficit reduction remains on track, however. How this plays out in the markets, with the Brexit negotiations ongoing, remains to be seen.

For more details on the budget and the topics raised here, contact Kellands.

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