Olawale Adeosun, Head of Regional Wealth Planning, summarises the key headlines from the Chancellor’s Autumn Statement.
The rumour mill ahead of the autumn statement was that we would see significant reductions in taxes. In particular, a possible reduction in inheritance tax was deemed to be in the government’s line of sight. Despite the intense speculation, the inheritance tax nil rate band and, residence nil rate band both remain unchanged at £325,000 and £175,000 respectively.
In the end, the Chancellor delivered an Autumn Statement that attempted to strike the right balance between fiscal discipline, imminent elections and providing a stimulus for economic growth.
Perhaps holding back some gun powder for bolder tax giveaways in the Spring Budget ahead of the General Election, what we saw in the end was a tinkering around the edges with relatively modest cuts to taxes. The headline was a 2% reduction in the employee rate of National Insurance from 12% to 10%, which is set to come in from January 2024.
The Chancellor stated that this would represent an increase of £450 a year in income to the average worker earning £35,000 a year.
The estimated cost of this tax giveaway to the government is c.£9 billion. However, with Income Tax thresholds frozen until April 2028, it is projected that an additional 4 million people would be paying Income Tax by 2028/29 and, an additional 3 million will fall into the higher rate tax bracket according to data from the Office of Budget Responsibility (OBR).
Employer rates of National Insurance remain unchanged at 13.8%.
Self-employed workers will also see a reduction in Class 4 National Insurance rate from 9% to 8% plus, an abolishment of Class 2 National Insurance from April 2024.
There was a boost to State Pensions, which is protected by the triple lock. The State Pension which increases by the higher of earnings, inflation or 2.5% will see pensioners benefit from a 8.5% increase in April. This means the full State Pension will increase to £221.20 per week from April 2024.
The other key measure included making permanent the full expensing capital allowance regime for businesses at a cost rising to £11 billion. The scheme allows companies to immediately deduct all spending on IT equipment, plant and machinery from taxable profits and was originally due to expire in 2026.
At present, individuals are only able to subscribe to one cash ISA and one Stocks & Shares ISA every tax year. Whilst the ISA allowance remains at £20,000, there will now be greater flexibility to subscribe to multiple ISA accounts from April.
Also, the current anomaly in ISAs which enables 16 to 17-year-olds to subscribe for an adult ISA of £20,000, as well as a junior ISA of £9,000 in a tax year will also be removed from April. Adult ISA subscriptions will now only be possible from age 18.
There were no changes to personal allowance threshold which remains at £12,570 and £37,700 (basic rate tax band). Additional rate tax threshold also remains unchanged at £125,140.
In addition, the Capital Gains exempt allowance is still set to reduce from £6,000 per individual in the current tax year to £3,000 in April 2024. CGT rates remain at 10% and 20% (18% and 28% for disposal of residential property) respectively for basic and higher rate taxes.
In the March 2023 spring budget, the government abolished the Lifetime Allowance tax charge for the 2023/24 tax year and, outlined its intention to remove the Lifetime Allowance altogether from April 2024.
In policy documents accompanying the Autumn Statement, the government confirmed its plan to abolish the Lifetime Allowance.
The Lifetime Allowance will be abolished from April 2024 and will be replaced by a new regime, which provides individuals with two new lump sum allowances; relevant lump sum and death benefits allowance.
The Relevant Lump Sum Relief (RLS), available on withdrawal of lump sums from pension arrangements, will be capped at £268,275.
Secondly, the government will also be introducing a Death Benefits Allowance. This would cap the tax-free lump sum payable to beneficiaries on death at £1,073,100.
Further details on the new lump sum pension allowances should be available when we see the Autumn Finance Bill.
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