The UK has endured two significant economic shocks in the last ten years. The first is what has become known as the global banking crisis in which the UK played a more than full part as a consequence of our over dependence on the previously highly profitable financial sector. From the UK perspective, the crisis was exacerbated by excessive government and personal borrowing. While both had been building for years, it is clear that Gordon Brown’s so called prudent budgets were anything but and the country has faced years of austerity in order to dig itself out of the problems then created.

The second shock, hitting an already weakened but nonetheless then reasonably growing economy, was the outcome of the Brexit referendum around 18 months ago. As a consequence of the government’s decision to accept the result of the advisory referendum’s narrow win, the UK is now facing a thoroughly ‘made at home’ shock in respect of all future trading relationships in respect of absolutely every economic activity that involves the movement of currencies, goods and services across international borders, in turn impacting all consumers. Much vaunted trade deals, with the EU and elsewhere, will take years to develop and a huge amount remains to be done.

The double impact of the financial crisis and of Brexit has serious long term implications leading to a slowing economy, falling inflation adjusted wages, the overhang of accumulated debt at government and personal level, all coupled with business investment that may well remain subdued at least until Brexit clarity emerges. While therefore in many ways the UK is facing what might be described as a long grind, there are some brighter spots. The first of these is that employment levels in the UK are high while increases in the minimum wage and in the personal tax allowance combine to provide some relief for those on the lowest incomes. Further, although the era of exceedingly low interest rates is slowly coming to an end, the government can continue to borrow relatively cheaply and indeed borrow a little more, without increasing the overall interest cost of its debt as compared with that ruling ten or fifteen years ago.

It is against this deeply uncertain background that Phillip Hammond has delivered a ‘steady as she goes’ budget with few major changes and in so far as investors are concerned, points to note are as follows:-

Individual Savings Accounts

The annual allowance for the next tax year remains at £20,000. After this year’s substantial increase, no change was expected and the case for ISA investment remains a strong one.

The lifetime ISA, for adults under the age of 40, is to remain at £4,000 in the next tax year while the Junior ISA allowance increases from £4,128 to £4,260.


VAT remains unchanged once again.

Income Tax

The Personal Allowance rises next April by £350 to £11,850. The aim of increasing this to £12,500 by 2019/20 remains in place. In the meanwhile, the basic rate band upper limit will rise from £33,500 to £34,500 while the higher rate limit is set to remain at £150,000.

Investors are reminded that the dividend allowance will fall from £5,000 to £2,000 from next April as previously announced. Dividends in excess of this figure are taxed at 7.5% for basic rate tax payers, at 32.5% for higher rate tax payers and 38.1% for additional rate payers. The reduction in the dividend allowance is substantial and further underlines the benefit of ISA investment over time.

Inheritance Tax

Once again, the IHT nil rate band and the annual gift allowance remains unchanged. However, from April, the residence nil rate band rises by 25% to £125,000, a significant benefit for those passing their main residence to direct descendants.

Capital Gains Tax

The annual tax free allowance is due to rise from £11,300 to £11,700 next April. The CGT lower rate and higher rate remain at 10% and 20% respectively, those figures rising to 18% and 28% in respect of gains on residential property (other than one’s main residence, which remains exempt). The annual exemption for Trusts remains at half that for individuals ie. £5,650.

Premium Bonds

The maximum individual investment remains at £50,000; that figure remaining unchanged for over two years now.

As an aside, following the recent rise in the Base Rate, the Premium Bond prize rate has also been slightly enhanced.


The annual allowance continues to be capped at £40,000 (or less if ones income is below that figure). The lifetime allowance will increase from £1 million to £1,030,000 from next April.

Non tax payers can continue to contribute to pensions, the first £2,880 of such contributions being eligible to receive 20% tax relief, grossing up the contribution to £3,600 per annum.

Tax Efficient Investments

Allowances for Seed Enterprise Investment Scheme investments will remain at £100,000 while the Enterprise Investment Scheme and the Social Investment Tax Relief Allowances both remain at £1 million. Venture Capital Trust allowances remain at £200,000 while a new category, known as Knowledge Intensive Enterprise Investment Scheme, with a £2 million allowance, is to be introduced.

These specialist schemes come with a variety of terms and conditions and are very much aimed at high risk investors with substantial tax concerns in mind.


Broadly, for individual tax payers, the budget has produced little significant change. At a time of falling economic growth, additional spending commitments are to be met by higher than anticipated borrowing over the next couple of years, rather than through tax increases.

The Investment Outlook

We plan to produce a New Year investment outlook news brief and will therefore not comment on this area at length now. Essentially, however, we take a somewhat cautious view of fixed interest investments which are likely to be subject to capital erosion should the trend towards higher interest rates accelerate unexpectedly (if for example there was a run on the pound or a further sharp inflation increase) so we continue to underweight this sector.

Conditions for global equity markets continue to remain broadly positive and although equity prices reflect this, we do not generally believe them over valued. Among UK equity funds however, our main focus is on those investing in larger companies which generally have large overseas earnings, protecting them to a significant extent from purely UK economic conditions.

In the commercial property sector, we are again inclined to favour overseas markets for, broadly, the same reason.

As part of the defensive strategy of portfolios, we have been using absolute and total return funds, often as an alternative to the fixed interest sector but also as an option where we consider portfolios to be overweight in equities and where a slightly more cautious stance might be more appropriate for some clients. We expect this trend to continue into 2018.