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A delicate balancing act in the face of much uncertaintyPublished on 23 November 2017
With high expectations to easy austerity and deliver eye catching solutions to a number of long term problem areas such as housing and the NHS, and against the backdrop of significant lower growth forecasts from the independent Office of Budget Responsibility, Philip Hammond was always going to face a difficult balancing act. With 24 hours reflection, the general view is that he has done a reasonable job. From our clients’ perspective there is minimal impact with the wider economic outlook likely to impact wealth strategies more than any legislative change announced yesterday.
In terms of the legislative and tax changes, the anticipated increases in personal allowances and the higher rate tax band were included and, perhaps surprisingly, no changes to pension tax relief or annual allowances. The Pension Lifetime Allowance was increased in line with inflation to £1.03m the first increase since 2010. Higher earners whilst seeing little of benefit have not been penalised further.
The most headline grabbing change was the removal of stamp duty for first time buyers up to £300,000. It will assist relatively few people – the biggest challenge to home ownership remains saving for the deposit -, but it will be of some benefit to clients seeking to help children onto the property ladder.
Changes to the VCT and EIS regime following the Patient Capital Review were largely as expected and continued the trend we have seen over recent years to target these reliefs at genuinely risky, growth investments. There was no reduction in the rate of the 30% tax relief, fear of which had caused many VCT providers to bring forward their cash raisings. Nevertheless we expect the VCT sector to take stock for a period before raising more money. They will require some time to adjust to shorter time frames in which to invest cash, tighter rules on what will count as qualifying assets and various other small changes to the rules.
On the other hand, there was support for EIS and particularly ‘knowledge intensive’ companies. The amount that can be benefit from tax relief on EIS increased to £2million provided anything over £1million is in knowledge intensive sectors. The maximum amount that a knowledge intensive company can raise increased from £5million to £10million.
These tax changes however are very much at the margin in the context of the wider economic challenges. The OBR reduced their forecast for growth in the UK in large part due to a reduction in their assumptions on productivity growth, an ongoing challenge for the UK since the financial crisis. Whatever your view on the long term merits or otherwise of Brexit, the current uncertainty is weighing on business investment and confidence which further hampers productivity growth. It is difficult to forecast with so much uncertainty about what rules will govern trade and services. Nevertheless, the forecasts and actual growth rates for the UK are now amongst the lowest for the G8 at a time when the rest of the world is growing strongly and finally emerging from the very low levels of growth which have characterised the world since the crisis. Investment strategies for protecting and growing wealth need to take advantage of that global momentum.
For our UK clients facing greater economic, political and legislative uncertainty, a good financial plan can help understand the impact of the various scenarios on your wealth. We will continue to work with our clients to help navigate through that uncertainty and support your lifestyle and wider goals.