OUR KEY TAKEAWAYS FROM THE 2023 AUTUMN BUDGET
Now the Budget is a bi-annual event, in the Spring and Autumn, we have the fortune of hearing about fiscal drag twice a year. It’s something that dominates the news for a couple of weeks prior, and gets dissected to the nth degree afterwards, with different channels focusing on different parts.
It’s very easy to be cynical about Autumn Statements as they are always political and the closer you get to an election, the more political they are. As usual, there are some important changes that are worth noting. Although inflation will remain higher than the Bank of England target for some time and short-term growth forecasts look weak, better than expected public finances (due to higher wage inflation) have allowed the Chancellor some leeway to manoeuvre…
BUSINESSES
The most significant changes are for businesses where full expensing will be made permanent, allowing businesses to write off the full cost of qualifying plant and machinery investment. It’s a good supply-side reform that seeks to incentivise business investment and therefore increase growth & productivity.
POUND IN OUR POCKET
National Insurance Contributions will be cut from 12% to 10% from January 2024, and the Class 2 NICs for the self-employed will effectively be abolished for those earning above £6,725, estimated to save the average earner £340 per annum.
While the drop in National Insurance Contributions is welcome, the freezing of the income allowances and reductions of Capital Gains Tax and Dividend Allowances will mean more people are dragged into paying more tax purely from wage inflation.
Despite rumours of decrease in income tax rates, these remain unchanged.
INHERITANCE TAX
The press machine went into overdrive about potential Inheritance Tax rates falling, however this did not materialise and therefore there’s been no change.
There’s a lot of news using figures of ‘only 4% of the population’ paying Inheritance Tax. But this in my view is a simplification and where say one parent is the person that is subject to Inheritance Tax for the statisticians, in the real world it also affects the children, or partner, as an example. Nor does it consider the allowances being frozen until 2028, by which point it’s estimated 16% of the population will be caught directly or indirectly. Planning in this area is becoming more important to address early.
STATE PENSIONS
Good news for retirees who will see an increase in their State Pension of 8.5% from April 2024.
WIDER PENSION RULES
Jeremy Hunt introduced the idea of a ‘pot for life’, which in principle seems great but in practice I expect to be very difficult to implement and mean more cost for employers. The target is to solve the general small pots people accumulate through changing jobs and will mean employees have the right to nominate what pension scheme they’d like their employer to pay their workplace pension contributions into. This is still in consultation.
The Lifetime allowance will be abolished from April 2024. We await the Finance Bill which will contain more detail however previous indications confirmed the removal of a lifetime allowance tax charge (already in effect) and an upper limit on pension benefits of £1,073,100. Effectively the tax-free allowance is still limited to £268,275, not increasing with inflation. Members with Lifetime Allowance Protection will maintain higher levels of tax-free entitlements and death benefits and any changes or planning in this area should require careful thought.
A new tax charge will be introduced for pension transfers to overseas where the total value transferred exceeds £1,073,100. The excess will be chargeable to a 25% tax.
ISAS AND OTHER INVESTMENTS
A simplification of rules in ISAs was pleasing, although not material to most people, in my view. The allowances on stocks and shares ISAs (20,000), Lifetime ISAs (£4,000) and Junior ISAs (£9,000) all remain the same.
The Chancellor was keen to stress the ‘digitisation’ of accounts and investments, which will mean more providers going paperless and account access becoming more app and email focused. If you’ve got any concerns about this, please do contact us as being independent we can select providers that fit your needs.
If you’ve any questions about the above, how it might impact, or any other areas, please don’t hesitate to get in touch.
