October News Round Up
11th October 2018
Rent a room-ers beware!
Currently, if you rent out a room within the property in which you live, you can take advantage of the government’s Rent-a-Room scheme. This allows you to earn up to £7,500 tax-free each year by letting out a room in your property. But take care as landlords who are wrongly claiming thousands of pounds in tax breaks when letting rooms face a clampdown in the Budget later this month. It is believed that The Treasury is planning to target property owners who "game the system" by claiming under the rent-a-room scheme. The government believes some of Britain's Airbnb landlords are claiming the perk on properties where they do not live. New occupancy rules - to be included in the Finance Bill, which will be published after the Budget, and come into force next April - would stop landlords claiming tax relief they are not entitled to.
Surprise inflation fall
UK inflation fell to 2.4% in September, down from 2.7% in August, the lowest level this year. According to the Office for National Statistics, the Consumer Price Index decreased because of falling prices for food and non-alcoholic beverages as well as transport and recreation and culture. Analysts had previously expected to see only a slight fall in inflation this month, down to 2.6%. Commentators felt the downward move in inflation would be good news for the Bank of England which is averse to raising rates again, having moved from 0.5% to 0.75% in August. This gives it more room to breathe and watch the impact of Brexit negotiations. The easing off in inflation is also good news for consumers, suggesting that real wage growth has picked up further. But before we get too optimistic it is worth noting that despite the decrease in the headline rate, there remain signs that inflationary pressures are building in the UK economy.
Lost pensions could be worth £20 billion
A staggering 1.6 million lost pension pots worth nearly £20bn could be sitting unclaimed, according to new research from an insurance trade body. Frequent job changes and home moves are the main reasons why people lose track of their pensions, the Association of British Insurers (ABI) said.
Research carried out by the Pensions Policy Institute (PPI) on behalf of the ABI surveyed half of the private defined contribution (DC) pensions market. The PPI found 800,000 lost pensions worth an estimated £9.7bn. It estimates that, if scaled up to the whole market, there are collectively around 1.6 million pots worth £19.4bn unclaimed – the equivalent of nearly £13,000 per pot. And the figure could possibly be even higher as the research did not look into lost pensions held in the public sector, or with trust-based schemes typically run by employers.
A cutting-edge deal: UK/US trade opportunities
A US trade representative has sent a letter notifying Congress that the Trump administration plans to seek a “cutting-edge” free-trade deal with the U.K. Getting such a deal done is one thing. The main requirement is political will – and that exists on both sides at the moment, so it seems. The U.S. accounted for 19% of the value of U.K. exports, is the country's largest single bilateral trading partner, and biggest export market. No country invests more in Britain than the U.S. A transatlantic agreement could, according to the Department of Trade and Industry, boost that trade and have knock-on benefits for the U.K.'s lagging productivity. But there are at least two significant roadblocks: The first is that this isn't a symmetrical negotiation. Brexiters speak often of the clout the U.K. has as the world’s fifth largest economy. But this is a tussle between a $19 trillion economy and a $2.6 trillion one. Second, and even more significant a hurdle, is that whatever Britain agrees with Washington will have an impact on the trade deal it secures with the EU – a much larger trading partner.
What to expect from the Budget
The 2018 Budget will be revealed next Monday amid continuing uncertainty about whether the UK can secure a deal on Brexit. Chancellor Philip Hammond has promised to deliver an economic plan to “build a stronger, more prosperous economy” and is reported to have said that “nothing is off the table”. Theresa May has already set him some major challenges by claiming that austerity is over and vowing to boost the NHS budget by an extra £20bn a year by 2023. Here’s what to expect:
- A fuel duty freeze.
- Income tax rise - Hammond has said that taxpayers will have to contribute a bit more in a fair and balanced way to support the NHS we all use. A senior Tory source said that this might mean scrapping the party’s pledge to raise the starting threshold for both the basic and 40% income tax rates.
- Possible VAT rise for small businesses: Currently firms only have to charge VAT if their turnover tops £85,000 a year. Halving that threshold to £43,000 could raise £1.5bn but hit half a million small firms.
- Pensions tax relief: it is possible the income threshold for the taper could be lowered from £150,000 to bring more senior executives and professionals into its scope.
Taking pot stock - is cannabis an investment opportunity?
You may have heard about the enormous gains marijuana stocks have generated over the past couple of years. You might also be aware of predictions about how large the marijuana industry could become, including a recent projection that the U.S. marijuana market could more than triple, reaching $22 billion by 2022. Many companies in the cannabis industry have opted to go public, making their shares available for purchase on public stock markets, to raise cash to fuel additional growth. But there remain two fundamental arguments against investing in marijuana stocks. One is the risk that the projected growth won't materialize – it remains illegal! Another is that marijuana companies' growth potential may already be reflected in their stocks' high valuations.
Cashless Britain - who benefits?
The claim that Britain is turning into a cashless society has always seemed a bit overblown. As in most rich countries, the amount of cash floating around has in fact grown in recent years. At more than £80bn ($104bn), the value of notes and coins in circulation is in real terms one-third higher than in 2007, when Britain got its first contactless payment cards. Yet lately something has changed. The value of currency in circulation has dropped, year on year, for seven consecutive months, for the first time since records began in the 1960s. If you add to this the 3,000 bank branch closures across the UK since 2015 and ATMs disappearing at a rate of 500 a month in the first half of this year there’s clear evidence that things have fundamentally changed. The official line from banks and regulators is that customers are driving the digitalisation of money. But there’s another, more sinister explanation. Our spending habits are monopolised by two US monoliths, Visa and Mastercard. It is forecast that between them they will control 90% of the total UK electronic payments sector by 2026. Both companies receive a cut from every card transaction. Interesting.
Prepare for the worst
The current odds are about even for a Corbyn-and-McDonnell-led Labour party to win the highest number of seats in the next election (whenever that is). There are mooted plans to:
- extend Stamp Duty Reserve Tax
- increase corporation tax from 20%
- abolish higher rate tax relief on pension contributions
- reduce the annual amount that is investable into a pension (and eligible for relief)
- reduce ISA allowances
- increase capital gains tax
With so much uncertainty as to what the next three months looks like – let alone next year – there are a few potential defensive moves to think about should any of the above happen.
If you are a higher rate tax payer and have any spare cash, it may not be a terrible idea to divert it towards a pension now. Similarly, it makes sense to maximise ISA contributions while limits remain generous. Anyone sitting on sizeable capital gains may want to talk to their adviser about crystallising some profits while the tax rates are so favourable. It’s also imperative (in any environment) to ensure that any family savings and investments are set up tax efficiently.
Taxman goes after parents
Thousands of parents in receipt of benefits designed to support working families have been slapped with a bill for "over-claiming" – in some cases dating as far back as 2013. Repaying the child benefit requires the parents affected to submit a self-assessment tax return. However, thousands of parents have failed to do so and are now being contacted by HMRC. HMRC has revealed it's issued 36,000 letters to families while 5,000 more are set to be sent shortly. A further 60,000 bills are also being sent to parents who could owe money for the 2017/18 tax year. The problem began with a change in child benefit rules in 2013, which saw anyone earning more than £50,000 having to pay some of it back. This charge increases by 1% for every £100 earned over £50,000 and once you earn £60,000 you have to hand the whole amount back.
The window shuts on the Retirement to Correct (RTC)
By now HMRC may have received your company and trust information from more than 40 territories in line with the Common Reporting Standards. The information will include details of things like overseas bank accounts, insurance products and other investments including offshore companies and trusts. The information will include your name, address, date of birth, and balance on the account/payments into the account. There was a small window to correct your tax history before the 'failure to correct' date came into force on 1st October. HMRC obviously thinks that this information will be a 'game changer' and in anticipation of receiving this windfall of information they and the government have been busy legislating in anticipation to increase its powers to take action. But, the fact remains that it is not in the national interest of the late adopter nations to comply with an incoming request for information in a timely manner, mostly because it is expensive, time-consuming and resource intensive to comply with a request to provide evidence. As such HMRC still has some way to go to streamline its more aggressive approach.