The tables below show the potential impact of changes that could be announced in this week’s budget, focusing on:
First time buyers - stamp duty holiday
Pensions:
- Pension tax relief restricted to basic rate
- Pension annual allowance cut
- Pension lifetime allowance cut
- Pension death benefit charge
- Increasing the pension contribution limit for non-earners
ISAs:
- Increasing LISA contribution limits
The personal allowance
First time buyers
Stamp duty holiday
The table below shows how much first time buyers would save in stamp duty if the Chancellor were to announce a stamp duty holiday for first time buyers. The average in the UK would be £1,654, although the impact would be greatest in London and the South East and almost non- existent in the North.
The table also shows the stamp duty saving as a % of the average first time buyer deposit in each region.
| Average first time buyer house price* | Stamp duty charge | Average first time buyer deposit* | Stamp duty as % of deposit |
UK | £207,693 | £1,654 | £32,899 | 5% |
London | £409,795 | £10,490 | £106,577 | 10% |
South East | £276,773 | £3,839 | £50,144 | 8% |
North | £125,591 | £11.82 | £18,594 | 0% |
*Source: Halifax First Time Buyer Review - https://static.halifax.co.uk/assets/pdf/mortgages/pdf/170701-Halifax-first-time-buyer-review_July2017.pdf
Pension
Pension tax relief restricted to basic rate
A 30 year old higher rate tax payer saving £500 a month would lose out on around £114,897 by the time they are 65 if pension tax relief was restricted to the basic rate.
Scrapping higher rate pension tax relief just for older workers would also have a significant impact. A 50 year old higher-rate taxpayer saving £1000 a month and planning to retire at age 65 would be £62,474 worse off in retirement.
Value UK savers of different ages would lose by the time they are 65 if pension tax relief is restricted to basic rate. Assumes 4% per annum investment return post charges.
Higher rate taxpayer | ||
Age | Saving £500 per month | Saving £1,000 per month |
30 | £114,897 | £229,795 |
40 | £64,968 | £129,935 |
50 | £31,237 | £62,474 |
Additional rate taxpayer | ||
Age | Saving £500 per month | Saving £1,000 per month |
30 | £143,622 | £287,244 |
40 | £81,210 | £162,419 |
50 | £39,046 | £78,092 |
Pension annual allowance cut
If the pension annual allowance were to be cut to £30,000 the maximum amount an individual could put in their pension would fall to £24,000, with the maximum basic rate tax relief falling to £6,000. Higher rate taxpayers would be able to reclaim an additional £6,000 via their tax return and additional rate taxpayers would be able to reclaim an additional £7,500 via their tax return.
The table below show what the contribution limits would be for different levels of pension annual allowance:
Annual allowance | £40,000 (current level) | £35,000 | £30,000 | £25,000 | £20,000 |
Max personal contribution | £32,000 | £28,000 | £24,000 | £20,000 | £16,000 |
Max basic tax relief (automatically added) | £8,000 | £7,000 | £6,000 | £5,000 | £4,000 |
Max higher rate tax relief (via tax return) | £8,000 | £7,000 | £6,000 | £5,000 | £4,000 |
Max additional rate tax relief (via tax return | £10,000 | £8,750 | £7,500 | £6,250 | £5,000 |
The table below shows the potential fund value at age 65 based on contributing the full annual allowance each year from certain ages (assuming 4% growth per annum after charges).
If the annual allowance was cut to £20,000 for example to align it with the ISA allowance, a 40 year old saver would not reach the £1m lifetime allowance even if they saved the maximum each year.
Annual allowance | £40,000 (current level) | £35,000 | £30,000 | £25,000 | £20,000 |
Start at age 30 | £3,063,933 | £2,680,941 | £2,297,949 | £1,914,958 | £1,531,966 |
Start at age 40 | £1,732,470 | £1,515,911 | £1,299,352 | £1,082,794 | £866,235 |
Start at age 50 | £832,981 | £728,859 | £624,736 | £520,613 | £416,491 |
Pension lifetime allowance cut
If the pension lifetime allowance is cut further it would reduce the level of income UK savers can generate in retirement.
The table below shows the reduction in annual income based on a single life, inflation linked annuity for a healthy 65 year old:
Lifetime allowance | Tax free cash (25%) | Annual income (annuity)* |
£1,000,000 (current level) | £250,000 | £22,509 |
£900,000 | £225,000 | £20,255 |
£800,000 | £200,000 | £18,002 |
*Source: Money Advice Service
Pension death benefits charge introduced
Currently pensions can be passed on to beneficiaries tax free if the person dies before age 75, and with the beneficiary paying income tax if the person dies after age 75.
The table below shows the potential impact of different levels of charge being applied to pension death benefits:
Fund value | 10% charge | 20% charge | 40% charge |
£100,000 | £10,000 | £20,000 | £40,000 |
£250,000 | £25,000 | £50,000 | £100,000 |
£500,000 | £50,000 | £100,000 | £200,000 |
£1,000,000 | £100,000 | £200,000 | £400,000 |
Increasing the pension contribution limit for non-earners
If there is an increase to the amount non-earners can contribute to a pension from £3,600 to £4,000, the maximum someone could pay in in future would be £3,200 (previously £2,880), with the Government adding £800 in basic rate tax relief.
This would increase pension fund values by the following amounts depending on how long the investment is held for (assuming 4% investment growth per annum post charges):
Year | Increase in fund value |
5 | £2,253 |
10 | £4,995 |
15 | £8,330 |
20 | £12,388 |
25 | £17,325 |
30 | £23,331 |
35 | £30,639 |
40 | £39,531 |
45 | £50,348 |
ISAs
Increasing LISA contribution limits
This table shows the annual Government bonus that savers would get if the limit was increased to £4,500 or £5,000.
Annual limit | Annual Govt bonus |
£4,000 (current level) | £1,000 |
£4,500 | £1,125 |
£5,000 | £1,250 |
This table shows the maximum Government bonus that would be available to UK savers depending on what age they start saving:
| Max Government bonus starting at certain ages | ||
Starting age | £4,000 contribution per annum (current level) | £4,500 contribution per annum | £5,000 contribution per annum |
18 | £32,000 | £36,000 | £40,000 |
20 | £30,000 | £33,750 | £37,500 |
25 | £25,000 | £28,125 | £31,250 |
30 | £20,000 | £22,500 | £25,000 |
35 | £15,000 | £16,875 | £18,750 |
39 | £11,000 | £12,375 | £13,750 |
The personal allowance increased
An increase from £11,500 to £12,000 will give UK workers an additional £100 each year
An increase from £11,500 to £12,500 will give UK workers an additional £200 each year