InvestmentsDec 1 2016

Investment tinkering in the Autumn Statement

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Investment tinkering in the Autumn Statement

Chancellor Phillip Hammond's Autumn Statement was light on investment pledges or promises, although as some commentators have claimed, it was full of "big themes".

Big themes included pledges to spend on UK infrastructure and development, and a continued commitment to support entrepreneurial growth across the UK, with a focus on bolstering regional economic improvements.

Jason Hollands, managing director of business development and communications for TilneyBestinvest, comments: "The big themes were, as expected, investment in infrastructure and innovation (and home building) as the UK government becomes the latest to embark on looser fiscal policy, following the example of Japan this summer and the pledges made by The Donald (president-elect Donald Trump) during the US election campaign."

He says the measures announced by the chancellor were "welcome but modest" although could be seen as part of a shift globally from central banks pulling the levers of monetary policy to do "the heavy lifting in economic management" and towards governments pulling the levers of "tax and spending to reflate growth".

Most savers will be likely to keep the champagne on ice as a result of this announcement, because it is certainly nothing that should pop their cork.Susan Hannums

According to Richard Buxton, head of UK equities for Old Mutual Global Investors, if there were any signs that the chancellor's Autumn Statement might indeed be a signal to markets that the government is now pulling the levers, they were very muted signals.

He comments: "The response of financial markets to the Statement was muted: gilt yields, reflecting the cost for government to borrow money, rose modestly, although in practice this only mirrored similar moves in the US and Europe.

"Similarly, modest declines in the stock market largely reflected comparable shifts in continental Europe and North America. While the pound declined by about 0.5 per cent against the US dollar, it actually rose versus the euro.

"These figures hardly have the makings of big headlines, but anyone who was hoping for more ambitious fiscal stimulus plans feel just a little disappointed.

"Time will tell whether the Office for Budget Responsibility's forecasts do indeed turn out to be overoptimistic, but in the meantime, his speech, while delivered with good humour, did little to set my pulse racing." 

National Savings & Investments bond

The government announced the launch of a Saver Investment Bond from National Savings & Investments.

This will offer 2.2 per cent gross for three years on a maximum of £3,000 and will be available from Spring 2017.

But for Henry Cobbe, head of Copia Capital: "While welcome, this makes little difference for anyone with savings greater than that."

Mike Gordon, technical director for Rutherford Wilkinson, explains: "If the maximum investment is £3,000, it is hardly rewarding for investors, with only £66 a year able to be earned in interest.

It is a shame the government didn’t go one step further and remove the punitive 15 per cent ‘deemed gain’ tax charge applicable where non-permissible assets are held.Rachael Griffin

"While the chancellor said two million people are due to benefit, we must remember the NS&I website crashing due to demand with pensioner bonds and so we shouldn’t hold our breath on these."

Their comments are echoed by those of Susan Hannums, director of independent savings adviser Savingschampion.co.uk, who says: “We think most savers will be likely to keep the champagne on ice as a result of this announcement, because it is certainly nothing that should pop their cork."

Isa commitments

Within the supporting documents, from April 2017 the government confirmed it was to continue with increasing the Isa annual limit to £20,000 per individual.

"This is a generous increase of approximately 30 per cent, when compared to the current Isa yearly limit of £15,240,” says Daniela Glover, head of London Financial Services at Smith & Williamson.

“This increase will provide a welcome boost for those savers who are able to put aside as much as this, particularly those investing in stocks and shares Isas and those additional rate taxpayers suffering from restrictions to their annual allowance for pension contributions.” 

Also squirreled away within the supporting documents was a change to the way in which Isas and Junior Isas will be uprated in years to come.

The annual subscription limit for Junior Isas and child trust funds will be uprated in line with the Consumer Prices Index (CPI) to £4,128, alongside the Isa subscription limit increase from £15,240 to £20,000, which was previously announced at Budget 2016.

This will be effective ‎from 6 April 2017.

Personal portfolio bonds

Tucked away in a supporting document, called Autumn Statement 2016: tax updates and technical changes, the government said it would press ahead with widening investment choice within personal portfolio bonds. 

According to Rachael Griffin, personal financial planning expert for Old Mutual Wealth, this is a good thing as it will broaden the range of assets investors can hold within such bonds. 

She explains: "The original restrictions on asset classes dates back to 1999. This move recognises the rise in demand for new types of assets, such as real estate investment trusts, and will be good news for investors."

However, she adds: "It is a shame the government didn’t go one step further and remove the punitive 15 per cent ‘deemed gain’ tax charge applicable where non-permissible assets are held. This charge applies when individuals in the UK inadvertently hold non-permissible assets at the end of the bond year.

"It is not inconceivable for a situation to arise where an individual invests in an open-architecture offshore bond while overseas, when they return to the UK they are unaware they are holding non-permissible assets, and so incur a cumulative 15 per cent tax charge.

"This cumulative charge dates back to when they first held the asset, and could create a large tax charge even where there has been no economic gain."

Missed opportunities

Some wealth managers believed the government missed opportunities to consider new tax incentives to help solve a "staggering" savings crisis among the so-called Jams - the 'just-about managings'.

Liz Alley, divisional director of financial planning for Brewin Dolphin, says she would have liked to have seen the introduction of a Saving for Grandchildren tax incentive scheme.

Ideally, this would have seen 10 per cent from a grandparent’s estate, which would reduce their inheritance tax (IHT) rate from 40 per cent to 36 per cent, similar to the current charitable giving scheme.

She also would have liked to have seen a measure allowing all gifts to a grandchild’s Jisa and pension to be immediately free from inheritance tax (instead of the current seven-year rule).

She says: "Given the scale of the pensions and savings crisis faced by younger people, we are calling on the government to consider new tax incentives to encourage older generations to pass on their wealth sooner.”

simoney.kyriakou@ft.com