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IHT and taper woes: five hidden Budget stories

Prudential's Vince Smith-Hughes and Les Cameron have decoded some of the hidden measures in this year's Autumn Budget.

In the rush of every Budget there are some stories that go unnoticed or missing. 

The Autumn Budget certainly had its fair share of such stories: even without any major pensions announcements there are knock-on effects that will become clearer over the coming days. 

Read on to see five of the hidden stories Prudential's Vince Smith-Hughes and Les Cameron have found in this year's Autumn Budget.

In the rush of every Budget there are some stories that go unnoticed or missing. 

The Autumn Budget certainly had its fair share of such stories: even without any major pensions announcements there are knock-on effects that will become clearer over the coming days. 

Read on to see five of the hidden stories Prudential's Vince Smith-Hughes and Les Cameron have found in this year's Autumn Budget.

Taper tantrum

‘It was welcome to see no tapered annual allowance changes in the Budget, which had been widely mooted,' said Prudential’s director of specialist support Vince Smith-Hughes. 

‘However it’s not all roses in the garden. As these rules have been in force for a while now, it is likely that individuals carry forward allowance from previous years is starting to run out. One of the consequences of that is those paying regular contributions will start to unwittingly breach the tapered annual allowance because they haven’t stopped or reduced their regular contributions. This could lead to some unintended tax bills.’

Good weather for IFAs

Budget figures show revenue from inheritance tax (IHT) has hit £5.3 billion this tax year.

The news is likely to increase demand for financial advice according to Les Cameron, tax expert at Prudential.

'IHT planning will continue to be a booming area of financial advice. Government estimates show the trend of rising IHT receipts has continued.  We’ve breached £5 billion for the first time and they will hit £6.5 billion in 2022,' he said.

Trust issues

The government will publish a consultation in 2018 on how to make the taxation of trusts simpler, fairer, and more transparent.

Smith-Hughes said: ‘The government has looked to simplify the IHT treatment of trusts fairly recently. The substantive changes mooted, broadly only having one nil rate band available for lifetime gifting did not go ahead. 

'What we will need to see is if this will be a measure that makes it harder to reduce your IHT bill or easier to administer the taxation of the trusts.  Will the income tax and capital gain tax treatments be under scrutiny this time?  

'It’s far too early to tell if this will be positive or negative for trusts planning. It should be remember that this does not detract from trusts planning,  in many cases the use of trusts is about controlling the passing on of your wealth as opposed to making it more tax efficient.’

Contribution conundrum

The Office for Budget Responsibility revised earnings growth down in line with its weaker outlook for productivity. It now expects earnings to pick up slowly from 2.3% this year to 3.1% by 2022.

Real earnings growth is forecast to average just 0.6% a year in the six years to 2022.

‘With the forecast of lower earnings growth it makes it even more important to review contributions as there will be a limited increase that takes place automatically for those in employer schemes,' said Smith-Hughes.

'Auto enrolment has been a great success – but we need to highlight to employees how much they need to save to give themselves the retirement they want.'

State pension increases

The basic state pension will be increased by the triple lock. The rise in April 2018 will be 3%, a cash increase of £3.65 per week for the full basic state pension.

The Treasury said the benefits of the triple lock uprating 'will also be passed on to the poorest pensioners' through an increase to the standard minimum guarantee in pension credit to match the cash rise in the basic state pension. This will be paid for through an increase in the savings credit threshold – the savings credit starting point. The full new state pension will also be increased by the triple lock, rising by £4.80 per week.

Smith-Hughes said: ‘The increase in the triple lock is good news for pensioners – buts it’s not all plain sailing. Recent inflation stats show food inflation running ahead of normal inflation, and pensioners tend to spend a higher proportion of their income on food compared to non-pensioners.’

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