Leading up to the Autumn Statement in November, everyone was geared up for impactful and dramatic changes, especially around the big hitters like inheritance tax, income tax and capital gains tax. But Jeremy Hunt’s ‘110 policies for growth’, turned out to be mostly filler rather than fantastic. In this summary, we focus on the measures we believe were some of those most likely to impact financial advisers, their firms and their clients.
The full details of all Treasury announcements such as the Autumn Statement can be found on HMRC’s website as always, but picking through the detail isn’t always easy. We’ve broken it down into relevant categories as follows:
TAX
The headline act centred around changes to the national insurance (NI) tax rate, with no changes announced to the income tax rates or bands. With all tax thresholds now frozen until 2028 and fiscal drag to account for, the NI changes are unlikely to have the noticeable effects most were hoping for.
Evelyn Partners’ Head of Tax, Sian Steele, says: “A substantial shift in the tax landscape is driven largely by the fiscal drag effect as the incomes of millions of people surge across the personal allowance and the higher and additional rate thresholds – so that people start to pay tax for the first time, or are drawn into paying tax at higher marginal rates.”
Class 1 NIC was cut from 12% to 10%
This change is due to come into effect on 6th January 2024. Strange, as the changes usually come into play from the new tax year, but the sooner the better for many workers across the country.
For those who are pre-retirement and still employed, this means additional disposable income each year. Whilst it may not be a lot, it’s still something worth addressing to make sure that this extra wage bump doesn’t get lost in everyday spending but is put to better use as part of a financial plan. For those who get their income from pension or investment income, sadly they won’t feel any of the benefits.
For context, someone earning £30,000pa, their monthly take-home pay will go up by £29.04 per month (£348.48 per year) from £2,035.26 to £2,064.30. This is 6.25% less tax than they would have been paying (Source: FT).
Class 4 NIC was cut from 9% to 8% and class 2 NIC was abolished.
This change is due to come into effect from 6th April 2024, as would be expected. For those who have businesses of their own, this reduction, although not huge, will likely be gratefully received as well as acting to simplify things for the self-employed.
Again, using the example of someone earning £30,000pa, their monthly take-home pay will go up by £14.52 per month (£174.24) from £2,078.82 to £2,093.34. This is 3.45% less tax than they would have been paying. (Source: FT)
As NI contributions support state benefits such as the state pension, job seekers allowance and maternity benefits, as well as many others, it remains to be seen what, if any effect this decrease will have on those support systems.
ISAS
There have been calls throughout the industry for simplification of the ISA regime. The ISA allowance is a valuable savings tool, and many individuals can feel overwhelmed by the options available which leads to indecision. There were no announcements addressing this but hopefully, this will appear on an agenda in the near future.
Allowances
The allowance for Individual Savings Accounts (ISA), Junior ISAs (JISA) and Lifetime ISAs (LISA) remain unchanged for 2024/25 which was a disappointment to many. As a basic requirement, where suitable, people should be encouraged to use their basic tax allowances. A staggering number of people aren’t aware of standard tax allowances, which are usually ‘use it or lose’ tax efficiencies.
Subscriptions
Individuals can now subscribe to more than one of the same types of ISA in a tax year. Whilst a small tweak to the existing rules, the extra flexibility will be a relief for some who have fallen foul of this in the past.
PENSIONS
After the recent abolishment of the Lifetime Allowance (LTA) charging structure, pensions got off lightly this time, with just a mention of personal pension reform and a confirmation that the government will stand by their triple lock promises.
State Pensions Triple Lock
State pensions will increase by 8.5% in April 2024 as per the triple lock agreement. This rise is based on average earnings growth which was higher than the other elements of the state pension triple lock arrangement, of CPI inflation and 2.5%.
On top of the 10.1% rise last year this is adding up for those clients of state pension age. A review of clients’ existing income arrangements may be in order to ensure excess income is not being drawn from investment portfolios alongside state pension income.
Consolidation
Although there were no changes confirmed around the consolidation of personal pensions, it was suggested that the government want to focus on better outcomes for savers by encouraging consolidation. They even mentioned the possibility of introducing a scheme where someone just has a single pension which is retained throughout their working life, negating the need to build up several individual pension pots throughout a person’s lifetime.
If this were to come to fruition it would surely simplify things for both clients and advisers and help when trying to find the best investment solutions and platforms for such policies. With nothing concrete confirmed this is a ‘watch this space’ announcement.
VCT & EIS
Sunset extension
The sunset clause has been extended for VCT and EIS until April 2035. The clause was created as part of European Union state aid rules which meant VCT relief is only available to subscribers for shares issued before April 6, 2025.
Seb Wallace, Investment Director at Triple Point Ventures, said: “It is great to see the Government are finally placing into law a critical extension of the VCT and EIS schemes, extending the schemes until 2035. These tax reliefs are vital for supporting our early-stage tech sector and enable the UK to set the foundations for brilliant later-stage businesses that will compete on the global stage.”
With more and more high earners turning to tax-efficient investments, in light of frozen tax thresholds, this extension will be a relief for many.
MUCH ADO ABOUT NOTHING
Forecasting was touched on, namely that inflation will fall to 2.8% by the end of 2024 and down to 2% in 2025. As well as the expectation that living standards are not expected to return to pre pandemic levels until 2027/8.
All in all, it could be argued that this was a fairly bland announcement all around, but I suppose, with the upcoming election in 2024, Rishi and his gang wanted to give away just enough to placate, but not too much to cause a scene. If that was the goal, then bravo to them, but I am certain many will be left thinking what more could have been done to ease the burden on consumers overall.
