I’ve noticed that there has ended up being a string of primarily financial posts. This was not intentional, but there happened to be lots of interesting material related to finance that has come up over the past few weeks. Also, a disclaimer: I am not a financial advisor and am not offering professional financial advice. Conduct your own due diligence or seek an advisor if necessary.
The UK government announced its Budget for 2018/2019, though with the caveat that it might be subject to change in the event of a no-deal Brexit (which looks a bit more of a risk each day). I’m a UK taxpayer, and thus changes in relation to tax and relevant allowances interests me; tax is my largest expense every year. As an expatriate I don’t have recourse to public funds, so I’m less aware of the changes pertaining to benefits and universal credit. The list below is far from exhaustive; readers should consult a more detailed guide like MoneySavingExpert or even the Budget itself if they want more details, or this Which? article if they’re considering optimising their tax affairs.
Income and Take-Home Pay
- Personal allowance has increased from £11,600 to £12,500 and the higher rate (40%) band has increased from £46,350 to £50,000.
- National insurance thresholds have risen; the start of the 12% band has increased from £8,424 to £8,632 (by £208), while its end has increased from £46,834 to £50,024 (by £3,190).
I was aware that the Conservative manifesto had pledged to bump the personal allowance and higher rate thresholds to these levels by 2020, so this is one year early. These increases seemed fairly generous – although I will be paying more in NI (notice that £2,982 is now taxed an extra 10 percent and £208 is now taxed 2 fewer percent – in other words I’m paying £294 more) the income tax saving looks pretty good, especially in nominal terms. (Whether Brexit wrecks the value of the pound further is another separate concern.)
A separate consequence of this is that the 62% marginal band has extended to £125,000 as well, as there’s more personal allowance to lose. Regardless, the changes are certainly positive.
In general, with inflation being positive, the value of a pound decreases over time. Thus, thresholds should be increased nominally at least in line with inflation if the goal is to implement a ‘neutral’ policy. I haven’t been keeping track of the history of these levels, but the roughly 7.75% bump in the thresholds is certainly well above inflation (and hopefully above two years of inflation – since the thresholds will be frozen next year).
Other Income Sources
- The Personal Savings Allowance remains at £1,000 for basic rate taxpayers, £500 for higher rate and £0 for additional rate.
- The Dividend Allowance remains at £2,000 – note that dividends in a pension or ISA do not count against this limit. Dividend tax rates are unchanged.
- The Trading and Property Allowances remain at £1,000.
- The Rent-a-Room scheme threshold remains at £7,500.
Most things held pretty steady in nominal terms (which means they’ve gone down slightly in real terms). That said, if interest rates continue to go up the savings allowance thresholds might quickly become relevant to me (obligatory hello to Marcus). I’m considerably further from the dividend allowance threshold, though again that’s something to watch out for if the markets decide to be exuberant. I haven’t been using the other allowances, though if an opportunity comes up that could be a possibility.
Securities and Assets
- The ISA (tax-advantaged savings account) limit remains at £20,000.
- The Capital Gains Allowance was increased slightly, from £11,700 to £12,000. Tax on capital gains is unchanged.
- The Lifetime Allowance for pensions was increased in line with inflation, from £1.03M to £1.055M.
Not too much to say here. The markets haven’t been so friendly so there’s certainly no extravaganza of crystallising significant capital gains this time around. To be fair, much of my gains in the 2016/17 tax year centered around massive pound weakness. ISA allowance being held where it is is a bit of a damp squib as I max it, but to be fair it is still very generous.
- VAT standard rate remains at 20%.
- Air Passenger Duty (APD) remains flat for short-haul flights, but rises by RPI for long-haul flights (roughly £2 for Y, £4 for premium cabins).
- Fuel duty is frozen.
- Alcohol duty is frozen for beer, “most cider” and spirits. Duty on wine and higher-strength cider increases by RPI.
- Tobacco duty increases by RPI + 2%. I don’t smoke, so don’t know too much.
Owing to how it’s calculated RPI tends to be higher – and it’s a little frustrating / naughty that most payments coming out of the Treasury (e.g. planned bumps in income tax/pension allowances) seem to be CPI indexed while those going in tend to be RPI indexed. The main reason suggested for the double standards is legacy technical debt, but that doesn’t seem to explain why the inconsistencies seem to consistently resolve in favour of the exchequer.
The APD change garners revenue for the Treasury, though it’s a little sad as APD is already incredibly high compared to aviation duties in other countries. That might actually increase the attractiveness of routing through Zurich or one of the German hubs when I fly the London-Singapore route.
For comparison, long-haul premium cabin APD ex-UK will be £172. Singapore’s duty is about S$47 (about £27); Zurich weighs in at CHF 35 (also about £27) and Munich at EUR 42 (about £37).
I guess I’m mildly affected by the alcohol duty change as I do drink wine, but I don’t drink a lot so the impact is very minimal. I’m not currently affected by the fuel or tobacco duty changes.
- The Royal Mint will produce a 50p coin to mark Brexit.
I’m somewhat of a Brexit bear and remain one (pun not intended). Taken at face value, the inscription (“peace, prosperity and friendship with all nations”) is at least one way in which I could see it possibly having a shot at working out – and assuming Brexit does go ahead is what I hope the government will do.
However, the quote is adapted from Thomas Jefferson’s inauguration speech as US President. The continuation is “entangling alliances with none”, which is in some ways apt if the UK is concerned with the EU’s ever closer union – though I’d think the US and UK in a modern-day context certainly are allies!
In terms of personal impact, the Budget felt very much like a constructive or at least benign continuation of previous Budgets. That said, I realise I say that from a point of privilege in that I view the status quo as manageable. I’m aware that there have been changes to benefits (notably, universal credit) which have made some worse off.