The Autumn Statement 2013 - What it Means for Individuals

In his Autumn Statement, the Chancellor outlined various measures that will have an impact on individuals regarding their income, taxes, savings and investments. Below Mitchell Charlesworth’s experts outline the main announcements and analyse some of the main changes in detail:

Tax, Allowances and Tax Reliefs

  • The personal income tax allowance is set to rise to £10,000 from April 2014, and then from 2015-16 to increase by the Consumer Prices Index (CPI) measure of inflation. This had previously been outlined by the Chancellor in the Budget 2013.
  • Capital Gains Tax: It was announced that from April 2015, capital gains tax will be imposed on future gains made by non-residents who sell residential property in the UK to make the situation fairer for UK residents.
  • A transferable tax allowance for married couples and civil partners is set to be introduced in April 2015, benefitting eligible couples by up to £200 but will cost around £700m a year.

Benefits and Pensions:

  • The state pension age is to increase earlier than previously announced. That is; to 68 in the mid-2030s and to 69 in the late 2040s.
  • Some changes to Pensions Tax Relief had already been announced that will take effect from April 2014. The lifetime allowance being lowered from £1.5m to £1.25m and the annual allowance is to be cut from £50,000 to £40,000.

Increase in the State Pension Age Earlier than Planned:

As had been widely trailed in advance of the statement, the state pension age is to increase earlier than previously announced as a result of the increase in life expectancy rates. The state pension age will rise to 68 in the mid-2030s and to 69 in the late 2040s. It is also expected that people in their late 20s will have to work until their 70th birthdays, in the 2050s.

The Government is going someway to tackle this issue through its introduction of the Workplace Pension Reforms and the obligation to auto-enrol all qualifying workers into a workplace pension scheme.

The inevitable conclusion that must be drawn from these changes is that younger generations need to seriously consider expert wealth management advice and alternative, tax efficient options for savings and investments, in order to maximise their pension pot in later years.

Personal Allowance:

As had previously been outlined in the Chancellor’s Budget 2013, it was confirmed that there will be a further increase in the personal allowance to £10,000 for the 2014/15 tax year. The threshold over which people will start paying tax at the higher rate will also be slightly increased to £41,865.

A Transferable Personal Allowance for Married Couples:

The Chancellor also furthered his support of ‘Britain’s Families’ by introducing a new transferable personal allowance for married couples from April 2015.

Whilst the Chancellor believes that this measure will help many of the poorest working families in the UK, the move has not been welcomed by groups representing single parent families who perhaps need more support than couples.

This new measure will be available to all basic rate taxpayers and it will enable people to transfer £1,000 of their personal allowance to their wife, husband, or civil partner. The Chancellor is keen to help those couples wherein one individual is not fully utilising their personal allowance and the other individual is paying tax at the basic rate. Ultimately, the spouse or civil partner who has received the transfer will benefit from a reduction in their income tax liability of £200.

Changes to the UK Capital Gains Tax Regime:

1.    Targeting Non- UK Residents -

The Chancellor announced two major changes to the UK capital gains tax regime to target perceived inequalities and tax avoidance.

Firstly, under the current regime, non-UK residents do not pay UK capital gains tax on the disposal of UK chargeable assets, such as property. Rather unsurprisingly as a result, the UK property market has been seen as an attractive investment for non-residents. Particularly in London, this has led to property prices being pushed upwards and has led to concerns that there may be a re-run of the housing bubble and the subsequent economic fallout.

As such, from April 2015 the Chancellor plans to introduce a capital gains tax charge on future gains made by non-residents disposing of residential property. While this should reduce the pressure on the UK housing market it will also make the taxation system fairer for UK residents. The government intends to publish a consultation on how this new charge will be introduced.

2.    Private Residence Relief Changes -

The Chancellor also plans to change arrangements regarding private residence relief which exempts capital gains on property used by an individual as their primary home.

Under the current system, the last 36 months of ownership is automatically exempt from capital gains tax even if the individual has not physically occupied the property during that time. From 6 April 2014 the system will change and the final period exemption will be reduced from 36 months to 18 months.

George Osborne has been forced to act as currently the system is open to ‘abuse’ as during that final 36 months the individual may at the same time claim relief on a second property.

Personal Finances:

As is the norm with the Budget and Autumn Statement, the Chancellor announced a few headline grabbing measures that will impact on individuals. Whilst these proposals are unlikely to greatly affect the state of the economy, they will be noticed by a vast majority of individuals going about their daily routine:

Fuel Duty: The September 2014 fuel duty rise of 2p per litre has been cancelled.

Rail Fares: Regulated rail fares increases for 2014 will be capped in line with the Retail Prices Index and not 1% above RPI as planned.

Car Tax Discs: The paper tax disc, that has been in existence for 93 years, and shows whether motorists have paid vehicle excise duty,  is to be replaced with an electronic system.

School Meals: Free school meals will be extended to all children in reception and years 1 and 2. This is expected to cost around £600m a year.

For more information on any of the issues outlined above, contact our expert tax team or complete a quick enquiry form and we will get back to you.

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