PensionsNov 25 2015

Predictions for the Autumn Statement

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Predictions for the Autumn Statement

Given the chancellor’s need to find extra cash after his tax credit reforms were watered down, a new definition of earnings might be employed for the state pension, experts predict.

This is just one of the many suggestions around what George Osborne will say next Wednesday (25 November), so here’s a round-up of what else might be on offer:

Tax credits

Many industry experts anticipated tax credit reforms will dominate the headlines following this year’s Autumn Statement. Given the Conservatives’ recent defeat in the Lords most experts can expect reform of tax credits to be watered down and/or further delayed.

Andrew Miles, head of research at Ascot Lloyd, said one option to help the low-paid would be to raise the rate at which employees pay national insurance contributions. This is currently levied at a rate of 12 per cent over £8,000 as opposed to income tax, which is not paid on earnings below £10,600.

Non-Doms

Andrew Shaw, tax partner with accountants Kingston Smith, pointed out that since the Summer Budget some of the rules on non-doms have been subject to consultation, with indications that they may not be quite as punitive as feared.

“Over the past few months many wealthy non-doms have been weighing up whether or not to leave the UK; the Autumn Statement may help to sway them one way or another.”

Tina Riches, national tax partner at Smith & Williamson, commented that while its inevitable that there will be changes for long-term resident non-doms.

“One area the government should simplify or abolish is the complex mixed fund rules for non-doms on bringing into the UK unremitted funds from prior years. Sorting this knotty issue would encourage further investment into the UK.”

Entrepreneurs Tax Relief

Accountants Kingston Smith noted that one of the chancellor’s tax targets is likely to be Capital Gains Tax, in particular Entrepreneurs Relief, which is estimated to cost up to £3bn per year.

Tax partner Graham Morgan stated: “It is unlikely that a pro-enterprise chancellor will abolish the relief altogether, but increasing the tax rate to (say) 15 per cent potentially raises £1.5bn - seemingly with little political downside.”

Sheriar Bradbury, managing director of Bradbury Hamilton, said he was “scared” about entrepreneurs relief potentially being scrapped, although he agreed that such a move would go against the Conservative’s general support for small businesses.

“Maybe he’ll restrict the criteria like with VCTs and EIS at the last Budget, I’m sure he’s worried about abuse of the tax relief.”

State Pension Changes

The government is committed to setting the level of the new state pension above that of the pension credit guarantee figure.

Malcolm McLean, senior consultant at Barnett Waddingham, explained that by law, that should rise at the same rate as the basic state pension, which from next April is expected to go up by 2.9 per cent in line with earnings from £115.95 to £119.30 a week – an increase of £3.35.

He predicted the announcement of these state pension increases as part of, or shortly after, the Autumn Statement.

Hargreaves Lansdown’s head of retirement policy Tom McPhail said given the chancellor’s need to find extra cash, a new definition of earnings might be employed to peg all the numbers back nearer to the guaranteed credit amount for pension credit of £151.25.

“This does mean even a very subtle sleight of hand on the indexation of pension credit and the rate of the new state pension could save the chancellor a few hundred million pounds,” he noted.

Also, given widespread support for the campaign in opposition to the accelerated increase in women’s state pension ages to 66, the chancellor may decide to modify the programme somewhat, with Mr McLean suggesting the increase will be extended by six months from November 2020 to April 2021.

Pension tax relief

Most commentators believe it is unlikely there will be anything new on pension taxation next week, especially given the chancellor’s confirmation that the Treasury’s final response to its Green Paper will come in time for next year’s Budget.

However, this does not preclude some form of interim announcement in the Autumn Statement and given their sensitivity to the risks of a ‘buy-now-while-stocks-last’ rush from higher earners scooping up pension tax relief, it is just possible the Treasury will act in the short term to curb this, said Mr McPhail.

Gary Heynes, head of private client and family wealth at ‎RSM UK, stated significant changes have already been announced for high earners which will see a big reduction in the relief available from April 2016 for those earning more than £150,000.

“However, the government has promised a more wide ranging review of the pension relief rules and we could see further changes announced here.”