The chancellor of the exchequer, Philip Hammond, has spared the annual allowance on pensions despite HM Treasury briefings ahead of budget day indicating that it could be pared back.
The chancellor had been under pressure to find extra money for a huge boost in NHS funding and to bring austerity to an end, with both promises made by prime minister Theresa May leading to speculation about a move to restrict several important reliefs.
However, the Office for Budget Responsibility had earlier upgraded its estimate for corporate and income tax receipts by £13bn, giving the chancellor enough wiggle room to meet his funding requirements.
Temporary reprieve?
The investment and pensions industry has expressed its relief at the decision not to move against pensions.
Jason Hollands, managing director of investment and financial planning group Tilney, said: “Pleasingly, a mooted raid on pension tax reliefs, did not happen. These have looked like they have been living on borrowed time since the chancellor’s predecessor, George Osborne, came close to overhauling them in 2016.
“The current system of pension tax reliefs has proved as resilient as a cat with nine lives. That will undoubtedly be welcomed by many middle-class professionals, but with a potential Labour government in the wings no one should take the long-term continuity of such generous reliefs for granted because of today’s stay of execution.”
Steve Webb, director of Policy at Royal London and a former pension minister in the coalition government, agreed: “The chancellor’s windfall from better-than-expected borrowing forecasts meant that he did not have to cut back pension tax relief in this budget.
“But having described the system as ‘eye-wateringly expensive’, it is likely to be only a matter of time before this chancellor – or his successor – comes back for more. Today’s respite for pension tax relief is likely to be only temporary.”
Not raising taxes
Hammond also announced he will increase the personal allowance to £12,500 and the higher rate threshold to £50,000 from 2019; after which both will be index linked, with the chancellor saying that this delivers a manifesto commitment one year early.
He said that this means a tax cut for 32 million people. “I didn’t come into politics to put taxes up.”
He has announced a package of further tax clampdowns to raise £2bn over the next five years.
Not grabbing headlines
Some experts, however, suggested that the chancellor had left some thorny issues for later.
John Annetts, partner & head of administration of estates at Howard Kennedy, said: “Real progress would come from a considered approach to reviewing more contentious areas like the residence nil rate band and Business Property Relief (BPR).
“In this climate, however, it is right for the chancellor to focus on the wider and more pressing matters facing the economy rather than seek to grab headlines by rushing through legislation that hasn’t been properly consulted upon.”
Tilney’s Hollands added: “After weeks of speculation around potential stealth taxes to cover the government’s NHS spending pledge, the budget saw a slew of new spending commitments and a welcome acceleration of plans to raise both the personal allowance and higher rate tax threshold to April 2019. Overall this was a budget that has outperformed expectations.”
Smaller tinkering
Also announced, HM Revenue & Customs is to become a preferred creditor. The Treasury has promised to end the practice of firms purchasing services through overseas branches and routing services through offshore companies.
The chancellor will extend a clampdown on contractors who have set up as small businesses but mostly offer services to a single organisation from the public to the private sector. The move could leave individuals liable for more national insurance payments. A similar move against contractors to the public sector has already caught out many well-known BBC staff.
The delayed pensions cold calling back looks set to implemented, subject to legislation.
The UK will also introduce a ‘UK digital services tax’, clearly aimed at tech giants to be paid by companies which are profitable and generate at least £500m in revenues on the business lines in scope.
This will be introduced in 2020 with the aim of generating £400m though the plan will be scrapped if the government can reach an alternative international agreement with other countries.
In terms of capital gains tax, from April 2020, lettings relief on properties will be limited to where the owner is in shared occupancy with the tenant.
