Personal Tax implications of the Autumn Statement

24 November 2023 - Paul Harris

Following the Chancellor’s announcements in his Autumn Statement on Wednesday 22 November, Paul Harris, Private Client Tax Partner unpacks what the changes really mean for you.

IHT lives on

So let’s not beat about the bush – the Autumn Statement will have been a massive disappointment to many. Despite plenty of speculation in the days running up to 22 November, amply fuelled by media hype, the Chancellor failed to abolish – or even to reduce – inheritance tax (IHT).

In the greater scheme of things, it’s not even as if IHT raises much revenue – a paltry £7 billion or so annually, compared to some £270 billion for income tax, £170 billion for national insurance (a tax by any other name), and £160 billion for VAT. And yet, with a flat rate of 40% and exempt amounts frozen until 2028, the impact of IHT on those who do have to pay it can be devastating.

As a result, it remains imperative for anyone of even moderate wealth to consider sensible lifetime estate planning–and the prospect of a future Labour government (of which more below) might add a touch of urgency.

What else was missing?

There were other notable absences from Jeremy Hunt’s speech – some good for taxpayers, some not so good – including:

  • No increase in the income tax personal allowance (£12,570) and basic rate limit (£37,700) which are fixed at their current levels until April 2028.
  • No change in the basic (20%), higher (40%) or additional (45%) rates of income tax – but remember that the point at which individuals pay the 45% rate was cut from £150,000 to £125,140 for the current tax year and this will continue for 2024/25.
  • No change in the rates of taxation on dividend income i.e. the ordinary rate (8.75%), the upper rate (33.75%) and the additional rate (39.35%) – but again, remember that the dividend allowance will fall from £1,000 to £500 from 6 April 2024.
  • No change in Capital Gains Tax (CGT) rates, business asset disposal relief (formerly entrepreneurs’ relief) or the tax-free uplift to market value on death – although the annual exemption falls from £6,000 to £3,000 from 6 April 2024.
  • No major changes to the tax regime for pensions following those made in 2023/24.
  • No changes to the limits on Individual Savings Accounts (ISAs) (£20,000), Junior ISAs (£9,000), Lifetime ISAs (£4,000 excluding government bonus) and Child Trust Funds (£9,000).
  • No changes to Stamp Duty Land Tax thresholds.
  • No changes to the remittance regime for non-domiciliaries (“non doms”).
  • No further deferral of the imposition of Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA), and no further increase in the current MTD lower threshold of £30,000.

Rabbit pie

Turning to the Chancellor’s purported ‘rabbit out of the hat’, the 2% reduction in the main rate of Class 1 employee National Insurance Contributions (NICs) from 12% to 10% certainly grabbed some headlines. And making it effective from 6 January 2024, rather than the usual 6 April, so that employees can benefit as soon as possible, was also a canny move. (Note that the self-employed will have to wait until April to enjoy their somewhat less generous helping of rabbit.)

However, as some commentators have already observed, the cut in NICs is very similar to the income tax that would have been saved if the personal allowance or higher rate threshold had been increased by inflation.  In other words, apart perhaps from supporting Mr Hunt’s argument that he is making work pay (because the NIC cut benefits only workers, whereas tax allowances also benefit investors), it seems that the rabbit has stealthily been popped back into the hat!

To be fair, there were also a few acts of untainted generosity on the Chancellor’s part – for example maintaining the Triple Lock to uprate the state pension by 8.5%; increasing working age benefits by 6.7% in line with inflation, and bumping up the national living/minimum wage.

The future….

With Labour the odds-on favourites to be in power within the next year or so, it seems sensible to plan on the basis that they, rather than the current Chancellor, will be setting the tax agenda for at least the next five years. The difficulty for tax advisers is that Labour are naturally anxious not to alienate potential voters in the centre ground, and – apart from a commitment to bring private school fees within the charge to VAT, and to end the “non dom” tax regime – they are confining themselves to general reassurances about not increasing CGT or putting up the top rate of income tax, or introducing a wealth or mansion tax.

In my view such reassurances should not be relied upon for long term personal tax planning, because they are not manifesto pledges as such – and even pledges can be ditched when economic circumstances (or political expediency) require. With that in mind, it might be worth considering the following prior to the next general election:

  • Crystallising capital gains while CGT rates are still relatively low
  • Passing wealth down to children or grandchildren, either by direct gift or (in appropriate circumstances) into trust, before any tightening of the IHT regime
  • Restructuring family businesses – especially farms and landed estates – to future-proof IHT reliefs as far as possible
  • Maximising pension contributions while relief is still available at the marginal rate of income tax, but having regard to the possible reintroduction of the lifetime allowance (LTA)
  • Prepaying private school fees while they remain exempt from VAT

The current Chancellor will of course have at least one further throw of the dice in the Spring budget, and so we may yet see further rabbits – for example, an increase in the threshold for paying the 40% higher rate of income tax, cuts to SDLT or even the abolition of inheritance tax. That said, barring a significant upset in Labour’s fortunes, any such measures – like those in the Autumn Statement – may only have a short shelf life.

To discuss any of the announcements made in the Autumn Statement and to plan before the Spring Budget, please contact Paul Harris by calling 0330 058 6559 or emailing hello@scruttonbland.co.uk

 

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