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How tax rule tweaks are changing pensions, savings and house buying behaviour

  • Pension clampdown on higher earners prompts a move to VCTs.
  • The rise in the ISA allowance, combined with healthy stockmarket performance, has helped offset the collapse in cash ISA rates and savings.
  • Tax saved through the personal savings allowance indicates that money not being saved into cash ISAs isn’t simply finding itself in savings accounts instead.
  • The stamp duty exemption for first time buyers is expected to have saved £125 million in tax between November 2017 and April 2018

HMRC has released details of the cost of various tax reliefs, confirming tax savings for 2016/17, and projecting levels for 2017/18. You can find the full report here.


The forecast for 2017/18 will be a combined cost of pension relief of £40.95 billion (£24.05 billion relief on personal contributions and £16.9 billion on NI relief on employer pension contributions). A £950 million increase on 2016/17 tax year. Cost of tax relief in 2016/17 for personal pension contributions was £200 million lower than estimated. The cost of NI relief in 2016/17 on employer pension contributions was £950 million higher than estimated.

Nathan Long - Senior Pension Analyst at Hargreaves Lansdown:

"The cost of reliefs on pension contributions is estimated to be £40.95 billion in 2017/18, an increase of £950 million on the previous tax year. The increase this year is fairly slight, but 2018/19 will see minimum contributions into pensions increase so this could be the calm before the storm. Whilst there is not the political inclination to change tax relief at present, if Brexit events were to send the economy into a tailspin, desperate times could call for desperate measures."

"The overall cost of relief on pension contributions for 2016/17 ended up being higher than anticipated. The Revenue overestimated the relief granted to individuals, but underestimated the cost of relief to employers. This could be attributed to a combination of more employers choosing to operate their contributions through salary sacrifice and larger payments into final salary pensions than anticipated in attempt to shrink scheme deficits."


The figures for VCTs have seen significant upwards revisions for the past two years, up from £110 million to £130 million in 2015/16, £115 million to £165 million for 2016/17 and forecast to rise to £185 million in 2017/18.

Nathan Long - Senior Pension Analyst at Hargreaves Lansdown:

"This is likely to be the result of a combination of the lowering of the pension lifetime limit and a reduction to the annual amount higher earners can pay into their pension, which has been driving investors into VCTs in search of tax-efficient investments."


The amount of money people have saved using ISA wrappers each year has steadily increased since 2014/15, when the overall limit was raised to £15,000 and restrictions were lifted over how much of the allowance could be held in cash. This trend has endured in 2017/18, with a rise to £2.9 billion.

Sarah Coles – Personal Finance Analyst at Hargreaves Lansdown:

"Unfortunately, this is not a stately straight line indicating a booming ISA market across the board. It’s the story of a flourishing stockmarket, growing stocks and shares ISA subscriptions, and the impact of the raising of the ISA limit to £20,000, which have managed to offset the effect of collapsing cash ISA rates and savings."

Personal savings allowance

The Personal Savings Allowance was introduced in April 2016/17, and the tax saving in the first year has been confirmed as £380 million. The estimate for 2017/18 is a fall to £340 million.

Sarah Coles - Personal Finance Analyst at Hargreaves Lansdown:

"This isn’t good news for savers. Given the ongoing collapse in cash ISA savings, there was optimism that we would see the tax relief on savings rise, indicating that this money was flooding into savings accounts instead, given that in the current market they are offering marginally higher interest rates. Unfortunately, a fall to £340 million, while reflective of the fact rates were so low in this period, is also an indication that this cash ISA money didn’t flood into savings accounts either."


2016/17 saw the tax saved rise to £120 million – up from £110 million – after the tax threshold was raised. The amount that could be made from renting out furnished accommodation in your house before tax was due was increased from £4,250 to £7,500. The forecast for 2017/18 is for that to continue rising, to £140 million.

Sarah Coles - Personal Finance Analyst at Hargreaves Lansdown:

"The figures go to show that this scheme has proved a boon for all sorts of homeowners - from older people looking to generate more money in retirement to young homeowners renting to friends in order to cover the rising cost of living."

Stamp Duty

The estimates for 2017/18 include a figure for First Time Buyer’s Relief for the first time. It was introduced on 22 November 2017 after the Autumn Budget, exempting first time buyers from stamp duty on properties worth up to £300,000, or the first £300,000 for properties worth up to £500,000 in London.

Sarah Coles - Personal Finance Analyst at Hargreaves Lansdown:

"The move is estimated to save first time buyers £125 million between 22 November 2017 and April 5 2018. There have been question marks over whether the move will stimulate the market or save first time buyers money in the long term, but clearly in the immediate aftermath of the move, those with purchases in progress are enjoying the benefits."


The long term trend for the inheritance tax take is upwards, but this set of figures has revised the data for previous years to show a slower rise than previously estimated in 2014/15 and 15/16 (to £24.75 billion). It then fell back in 2016/17 to £24.25 billion.

Sarah Coles - Personal Finance Analyst at Hargreaves Lansdown:

"Given that property values and the stockmarket have performed well throughout this period, a major factor is likely to be the death rate, which has fallen. Estimates for 2017/18, are for another fall, to £23.45 billion, as the death rate remains low. This is offsetting any impact from the phasing in of the main residence nil rate band (when a residence is passed onto a direct descendant), which in 2017/18 provides an additional £100,000 allowance. This is likely to be partly because the new nil rate band will take time to filter through into the actual settlement of estates."

Dividend allowance

The £5,000 dividend allowance was introduced in April 2016, and there’s every evidence that investors, small business owners and directors are taking full advantage of the change. The estimate for 2016/17 has been revised upwards to £1.33 billion, and is expected to rise in 2017/18 to £1.36 billion. Of course, this bonus is not expected to last, as the reduction of the allowance to £2,000 will take effect in 2018/19.