The Chancellor’s Budget on 8 March was the first of two due in 2017. The final spring Budget came little more than three months after an Autumn Statement that suggested government finances had taken a post-referendum turn for the worse. However, the latest short-term economic numbers turned out much better than the Office for Budgetary Responsibility’s (OBR’s) November projections.
This good news gave the Chancellor a little ‘wriggle room’, but instead he chose to offset some modest increases in spending – mostly focused on social care – with tax and NIC rises mainly aimed at the self-employed. For once, the volume of Budget documents issued by the Treasury shrank significantly, but there were still some surprises to be found in the detail.
One example was the move to levy a 25% tax charge from 9 March 2017 on most transfers to qualifying recognised overseas pension schemes (QROPS), even though the Autumn Statement had announced a tightening of the QROPS rules. The cut in the dividend allowance from 2018/19 was also unexpected and catches not just the target one-person companies. Personal investors with equity-based portfolios worth more than about £60,000 (based on current UK dividend yields) will pay more tax. Ironically one effect will be to increase the appeal of ISAs, which benefit from a large contribution limit rise next month.
The Chancellor resisted making any announcements about future increases to the personal allowance or higher rate threshold, presumably saving some good news for his autumn set piece.
“A strong economy needs a fair, stable and competitive tax system, creating the growth that will underpin our future prosperity.”
- A reduction in the dividend allowance from the current £5,000 to £2,000 from 2018/19.
- A 1% increase in the main Class 4 NIC rate to 10% for 2018/19 and a further 1% addition to 11% for 2019/20.
- A one year deferral in the start date for Making Tax Digital (MTD) for unincorporated businesses and landlords whose turnover is below the VAT threshold (£85,000 from 1 April 2017).
- An increase in the personal allowance for 2017/18 to £11,500 and a corresponding rise in the higher rate threshold to £45,000, although in Scotland the latter figure will only apply to savings and dividend income.
- A new 25% tax charge on transfers to qualifying recognised overseas pension schemes (QROPS), other than for those who have ‘a genuine need’ to transfer.
- Three measures to help small businesses cope with the changes to business rates, due to take effect in April 2017, starting with a new £50 a month cap (in 2017/18 only) for businesses that lose Small Business Rate Relief.
- The publication later in the year of a green paper examining the funding of social care, although the Chancellor ruled out the rumoured ‘death tax’. In the interim an additional £1bn is to be made available for social care funding in 2017/18.