The autumn Budget is set to be announced on November 22nd and investors in asset classes, investment vehicles, wrappers and schemes that involves any kind of tax break will be particularly keen to hear to hear its contents. Over the last few years we’ve seen budget announcements increasing personal allowances for ISA and SIPP contributions that take advantage of generous tax breaks. We’ve also seen rules relaxed around asset classes and access to cash and investments held in tax-efficient wrappers.
On the other hand, owners of investment properties had a far less positive experience recently with 2016’s spring Budget announcing that many of the tax breaks they were able to take advantage of would be phased out. This has had a significant impact on buy-to-let as an investment class, convincing many landlords to sell up and exit the market and discouraging others who had been considering investment properties. That was clearly the aim of the changes with accusations that the increasing popularity of buy-to-let was pushing prices up out of the reach of many would-be homeowners. While the Government taking action by slashing tax-based incentives was understandable, the move obviously had a negative impact on property investors.
So, what are the predictions for the Budget announcement later this month and are there any particular groups of investors that should be worried? SIPP and pension investors could be an easy target for Mr Hammond, who’s immediate predecessors have slashed the annual personal allowance that income tax is refunded on if paid into a pension. In 2010/11 the allowance was set at £255,000 a year and is now £40,000 this year. Government pension contributions, which mean income tax already paid on income subsequently put into a pension is refunded in the form of a top-up, is expensive. Successive governments have incentivised private and workplace pension contributions in an attempt to stave off a future pensions crisis for an aging population. However, because only the relatively well-off are able to make annual pension contributions as high as £40,000 per annum, shaving that again can be passed off as only impacting the well-off, reducing public outcry.
Online investments could be hit by an increase in tax due on dividends. Last year the budget announced that the tax-free allowance for dividends would be reduced to £2000 from £5000 and there are rumours that this could be cut further this year. Any change wouldn’t affect those who hold investments in stocks and shares ISAs, which shelter dividends from tax but would hit those with large stock market portfolios not held in a wrapper.
Finally, there are strong indications that tax breaks the EIS investors currently take advantage of could be cut back significantly. The Enterprise Investment Scheme was set up to encourage private investment in young British companies and investors can both claim back income tax on initial sums invested in EIS-compliant companies and also again to mitigate any losses if the company subsequently fails.