2016 UK Autumn Statement

The new Chancellor of the Exchequer Philip Hammond delivered his first Autumn Statement on 23 November 2016. Despite the uncertainty created by the impending Brexit negotiations, his aim was to reassure the business community that the UK economy would remain stable in the long-term. Not surprisingly therefore there was far more in the way of economic measures rather than pure tax changes. Certainly as far as personal taxation is concerned there was very little to get excited about. Perhaps the most notable aspect of the Chancellor’s first Autumn Statement is that it will be his last Autumn Statement!  This is because the 2017 Spring Budget will be the last Spring Budget and in future the Budget will be presented to Parliament in the Autumn – as it used to be in the days of Kenneth Clarke. Unfortunately, however, this means that there will be two Budgets in 2017.

As far as New Zealand resident taxpayers are concerned, the main points to note are:

• The Government reaffirmed its intention to extend the personal allowance up to £12,500 by 2020. The personal allowance in 2017/18 will be £11,500 (up from £11,000 in 2016/17).

• The basic rate band will increase from £33,000 in 2016/17 to £33,500 in 2017/18. This will mean that an individual will be able to earn up to £45,000 of income in 2017/18 without paying any higher rate tax.

[It should be noted, however, that the way in which income is taxed has become increasingly complex in recent years with the introduction in 2016/17 of a £5,000 ‘dividend rate band’, a ‘starting rate band’ of £5,000 and a personal savings allowance of £1,000 or £500 or £nil depending on income levels.]

• Most salary sacrifice schemes will lose the tax and National Insurance benefits from April 2017.

• National Insurance: From April 2017 the thresholds for employees’ National Insurance and employers’ National Insurance will be aligned. This will simplify National Insurance considerably although it remains to be seen whether National Insurance will ever be integrated within the income tax system – as many people believe it should, given that it is just another form of taxation.

• From 6 April 2017 the Government will introduce a property income allowance of £1,000 which will mean that individuals with property income below £1,000 in a tax year will no longer need to declare or pay tax on the income. This is unlikely to be of any benefit to a New Zealand resident with a single UK investment property because the UK personal allowance will normally result in there being no income tax payable. This is not an extension of the UK personal allowance for property income – it is a simplification method allowing taxpayers with very minimal property income to avoid the need for self-assessment returns.

• Non-domicile taxation: From 6 April 2017 non-UK domiciled individuals will be deemed to be domiciled in the UK for all tax purposes after they have been UK resident for 15 of the past 20 years. This means that the very favourable remittance basis of taxation (where non-domiciled individuals could avoid tax on overseas income by not remitting it to the UK) will only apply for 15 years for long-term UK resident, non-domiciled taxpayers.

This new rule will also be important for anyone who has migrated to New Zealand – it will mean that in most cases a person who has been non-UK resident for less than five UK tax years will be deemed to be domiciled in the UK for inheritance tax (IHT) purposes – and hence subject to IHT on worldwide assets.

Finally, it may be of interest to note that the ISA limit will increase to £20,000 in 2017/18. This means that an individual can contribute £20,000 into a tax-free savings account which has always served to encourage savers. In New Zealand, the nearest we have to such generous tax reliefs is the PIE regime which offers just a small reduction in the tax rate of an investment – for 33% taxpayers the reduction is just 5% which is hardly an incentive for savers. In my opinion, the New Zealand Government should do a lot more to encourage savers – this would have a knock-on effect of helping people save enough money to put down a deposit on a house. The ISA is both generous and simple; the PIE regime is mean and complex.