What the Autumn Statement means for your wallet

Chancellor George Osborne’s autumn statement has finally arrived. As predicted, he’s made a few changes that might affect you personally. Here are some of the decisions you need to pay particular attention to, and how we think you should react.

Choose ISAs before pensions

As we predicted, the chancellor has gone after pensions. The good news is that the state pension will rise by 2.5% next year to £110.15 a week.

However for those not planning to just rely on this, his big move is to cut the annual allowance on pension contributions from 2014/15 by £10,000 to £40,000. Some had expected him to cut even deeper to £30,000. However he also followed it up with a cut in how big your pension pot can be (the lifetime allowance) before you have to pay tax, from £1.5m to £1.25m. In 2010 it was £1.8m.

In some ways this is a much bigger deal than simply cutting the tax relief on contributions as some thought he might. This is because it makes it much harder for people to get around the limit by increasing their payments in the short run, and then reducing them as the limit falls. This practice of ‘front-loading’ may now be self-defeating in all but the very short term for high-earners.

This means that you should definitely consider pushing as much money as you can into an Individual Savings Account (ISA). One of the few bright spots for investors was the above-inflation increase in the ISA allowance to £11,520. He has also said he will seriously think about allowing investors to hold Alternative Investment Market (AIM) shares within their I.

Tax picture is mixed

Pensions apart, there is mixed news on the tax front.

An above-inflation rise in the personal tax allowance next year means that you don’t have to pay tax on earnings below £9,440. The government has signalled that it won’t adjust the clawback that occurs for those earning more than £100,000 to take account of this, so higher rate taxpayers will also benefit.

The planned increase in fuel tax has also been scrapped, rather than merely postponed. This is good news if you do a lot of driving, and raised a cheer in the House of Commons when it was announced.

Perhaps to the disappointment of Nick Clegg there will be no new tax on high-end property (the so-called ‘mansion tax’). That will come as a relief to anyone who lives in an area where property is expensive.

However, these early Christmas presents are balanced by the fact that there are going to be a number of sneaky tax hikes. The zero rate thresholds for inheritance tax and capital gains are to rise by less than the rate of inflation, creating yet more ‘fiscal drag’ on your assets. The threshold at which the top rate of income tax kicks in is also being increased by just 1% in 2014 and 2015, a cut in real terms.

Meanwhile tax dodgers watch out – HMRC’s anti-evasion budget is going to be increased by £70m in an attempt to catch people trying to cut their tax bill by bending the rules.

18 Responses

  1. 05/12/2012, Boris MacDonut wrote

    This could be considered a stimulus package. 36 million folk will get an extra £270 a year each due to the 17% rise in the basic personal allowance. That is almost £10 billion. Coupled with not raising petrol prices by 2.4%. Many businesses have factored in the fuel duty rises for their 2013/14 budgets but one would expect tinflation to fall even further.

  2. 05/12/2012, John Clark wrote

    I think the state pension is going up to £110.15, not £100.15 as mentioned in this article.

  3. 05/12/2012, Andy wrote

    #1 Boris MacDonut “one would expect tinflation to fall even further.”

    Tinflation? Yes I’m sure that will fall further…

    Inflation on the other hand will be well above the 1% rises planned on some benefits, whilst at the same time the average household will be more than £1000 worse off by 2015 under the new tax rules.
    Sunny times ahead indeed….

  4. 05/12/2012, Don wrote

    Andy, clearly Boris has been getting in the xmas spirit by putting his tree and tinsel up. We all know that tinsel inflation, aka tinflation, spikes in December and falls sharply thereafter. Merry early xmas.

  5. 06/12/2012, Boris MacDonut wrote

    #3 . It comes from living in Salford for 5 years. Where it is normal to refer to T’Egypt, T’Internet and so on. I expect inflation to wither next year. Commodity prices are down 18% and places like Australia are grinding to a stop.

  6. 06/12/2012, John wrote

    “…you don’t have to pay tax on earnings above £9440.”

    So only the very low paid will be paying tax?

  7. 06/12/2012, commentator wrote

    Not content with puffing house prices, Boris is now expecting inflation to wither ….despite £375 billion of QE in the system and no conceivable way of the Government paying its debts apart from money printing. Fanciful…..

  8. 06/12/2012, Brit Abroad wrote

    Just wondering if the lifetime pension allowance will apply to the top echelons in the public sector.

  9. 06/12/2012, gotaway wrote

    Well you Brits certainly live up to your “stiff upper lip ” ,” Dunkirk Spirit” nonsense.When are you going to become ANGRY and actually do something? Yes ,I am British and I did something about it in 1990.I left.After all my years of putting up with your stupid crowd mentality of Britishness, I took my family away.Not easy, but very satisfying.So for goodness sake, stop your complaining and actually do something for yourselves.Your country is broke, not only in money but in hope, ruined by corrupt, idiotic elites, voted in and acquiesced to by a sniveling population on the look out for an easy handout.Feel insulted? Good.Then maybe, just maybe, you will do something positive.I doubt it though.

  10. 06/12/2012, Another gotaway wrote

    Well said, Gotaway! We got out too, away from the grey damp life that exists, just, in UK. Main snag with the argument, though, is to find somewhere less corrupt that will let you in full time.
    The West Indies look good, until you check their corruption record!
    COME ON UK VOTERS! Stand up and be counted and vote for someone who will do the sensible things. One of which is to realise that “Growth” is not the answer we cannot keep growing – the Earth is not getting any bigger. We have to learn to stabilise, and then reduce demands on it.
    Hopeful? No? Me neither.

  11. 06/12/2012, Steve wrote

    I am considering leaving too. I look at what may – or is likely – to be ahead for the UK and I don’t like what I see. Leaving may be the best option.

  12. 06/12/2012, Mark wrote

    You “Gotaways” have a serious flaw in your arguments, you haven’t told us which countries you consider are better. D’oh!

  13. 06/12/2012, Bioris MacDonut wrote

    #9&10 Quitters. You should never be allowed back with that ingratitiude. Britain is a fantastic place and would be better if a few more cynical miseryguts’ removed themselves elsewhere.

  14. 06/12/2012, Robo19 wrote

    to hand over a large sum of cash to the relevant Government for a period of time, in order to gain their acceptance.
    We like Cyprus – but there must be others. Any ideas folks?

    Look forward to hearing – thanks. Robo19

  15. 06/12/2012, another gotaway wrote

    Dear Boris: your attitude is exactly one of the things that drives us away!
    Dear Mark and Robo: you strike the nail firmly on its head. If only we could guarantee what you ask for, we would be there already. Europe has major advantages as you can just go anywhere in EU and they cannot stop you – that’s why so many eastern europeans are in UK etc. Non european places have quotas, maximum residency periods, alien landholders’ licences (about 10% of purchase price before you start the legal fees bit), and all sorts of other stuff to impede you and cost you lots of dosh. Be very careful unless you are named Branson or similar!

  16. 09/12/2012, 4caster wrote

    “Yes”, Brit Abroad #8. The public sector is not exempt, and has little opportunity for tax avoidance.
    A 54-year-old Army officer, who joined at 21 and has served for 33 years, the last 4 of them as a Major, earns £52,473. He gets promotion to Lieutenant Colonel on a starting salary of £67,031 but only has one year to serve till he retires at age 55 after 34 years’ service. The £14,558 salary increase will have boosted his 50% pension from £26,236 to £33,515. HMRC actuaries will calculate the increase in his notional pension pot – a huge one by private sector standards. (It has to provide his lump sum of £100,546 and his CPI-linked pension, until he dies.) They treat this sudden increase in the size of his imaginary pension pot, not as if it were a capital gain in a real pension pot, but as if he had earned it in his last year on top of his salary, and paid it in himself. If it exceeds the pension contribution ceiling for that year, he will be taxed on the excess, perhaps at 45%.

  17. 10/12/2012, Boris MacDonut wrote

    #15 What? One of the things that drove you away was people who think those that leave Britain and then disparage it are disloyal. We do. Britain may not be perfect ,but in my experience is better than virtually anywhere else other than Italy, Argentina and perhaps France.

  18. 11/12/2012, Lupulco wrote

    Correct move to somewhere warm within the EU, if over 65.
    1] They cannot stop you.
    2] You can use their NHS as either a national, or the UK picks up the tab.
    3] Your pension can be paid to you, including any rises and other benefits.
    4] If the local state pension is more then the UK’s you are entitled to claim this instead of the UK’s. The UK picks up the tab.
    5] Food, drink and rents are cheaper. At least cheaper then the equivalent in the UK.
    Have a think, learn the local language and join the grey haired escapees.

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