John Woolley outlines key changes concerning financial advice from the Autumn Budget
Jeremy Hunt delivered his first Budget as part of the Government’s Autumn Statement. This came at the end of a period of financial turbulence over the last couple of months, commencing when the mini-Budget was delivered in September. Many of those proposals have now been reversed.
Here we provide a resumé of the main changes announced in the Autumn Statement and those that were announced in the mini-Budget that have survived.
The main tax changes announced in the Autumn Statement were as follows:
A number of key reliefs, exemptions and allowances had already been frozen until 2025/26. The following will now be frozen until 2027/28:
- The income tax personal allowance of £12,570;
- The basic rate income tax band of £37,700 of taxable income;
- The employee’s primary NIC threshold of £12,570;
- The employer’s secondary NIC threshold of £9,100; and
- The inheritance tax nil rate band of £325,000 and residence nil rate band of £175,000
The impact of these extensions will be to cause millions more people to fall into tax and higher rate tax for the first time because of natural inflationary increases in income. The appreciation in asset values will mean many more fall into the inheritance tax net.
Clients need to maximise reliefs, exemptions and allowances to fight back against these increases.
No announcement was made on an extension to the period over which the pensions Lifetime Allowance is frozen and so it would appear that this will remain at £1,073,100 until 5 April 2026.
The figure at which the 45% income tax rate starts will reduce from £150,000 to £125,140 in 2023/24. Taxpayers with income in excess of £50,270 could therefore suffer income tax at any of the following rates:
£50,270 - £100,000 40% (33.75% if dividends)
£100,000 - £125,140 60% (50.63% if dividends)
£125,140+ 45% (39.35% if dividends)
People who are suddenly dragged into the additional rate band should consider maximising their pension contributions to reduce their adjusted net income and get effective tax relief at 45% or 39.35%.
In tax year 2022/23, the dividend allowance means that the first £2,000 of dividend income is taxed at the nil rate. This allowance will reduce to £1,000 in 2023/24 and £500 in 2024/25 so, most dividend income will incur higher tax liabilities in the future. Planning solutions to deal with this change will be to hold more equity-based investments in ISA and pension wrappers. Single premium investment bonds may also become more attractive for holding pooled asset equity-based investments.
The capital gains tax annual exempt amount of £12,300 will reduce to £6,000 in 2023/24 and £3,000 in 2024/25 (and it is assumed that the exemption available to trusts will reduce to £3,000 and £1,500).
Where appropriate, clients should seek to maximise the use of their CGT annual exempt amount – especially whilst it is at the higher level in 2022/23. Clients who are married or in a civil partnership should take planning action so that they can both maximise the use of their CGT annual exempt amounts – possibly by transferring investments between them. Loss relief will also become more important as the annual exempt amount reduces and so more capital gains become taxable. Going forward, CGT-free shelters such as ISAs and pensions will become even more important.
Other important changes that were covered were
- Confirmation that the State pension will increase by 10.1% in April 2023 under the triple lock provisions;
- The deferral of the implementation date of the new care financial provisions until October 2025;
- Whilst the increase in SDLT thresholds announced in the Mini-Budget survived, these increased thresholds will only now apply until March 2025;
- The reductions in NIC rates announced in the Mini-Budget survived so that the proposed 1.25% increase will not apply. The employee’s NIC rate on band earnings will remain at 12%, the employer’s rate at 13.8% and the self-employed Class 4 contribution rate at 9%. Class 2 and Class 3 contributions will increase to £3.45 per week and £17.45 per week respectively from April 2023; and
- changes to the Seed EIS announced in the Mini-Budget have survived and so the maximum investment has been increased to £200,000 per tax year.
John Woolley is contactable at John.email@example.com or on 07802 584742