The Autumn Statement
HM Treasury Flickr
The Chancellor gave his latest Growth update on 22nd November 2023 announcing a series of measures for business and individuals. With the economy still in a delicate phase following the rise of inflation and interest rates over the last 18 months, there were some giveaways and changes to consider.
The Key Points that will impact Prosperis clients are detailed below. Unless noted otherwise these changes will take place from 6th April 2024.
As with any change in legislation, it is important to consider whether you may be affected by these announcements, therefore, we encourage all our current and prospective clients to speak to their usual Prosperis adviser or get in touch with us if you would like to understand where Prosperis can help. Our contact number is 01423 223640 or email us at advice@prosperis.co.uk
Taxation
Income tax bands will remain as they are in 2024/25, maintaining the freeze we have seen since 2021/22.
National Insurance contributions see the most significant change. Self Employed people with profits over £12,570 will no longer need to pay Class 2 National Insurance Contributions with Class 4 NICs reducing from 9% to 8%.
Employee (Class 1) National insurance reduces from 12% to 10%, with this change taking place earlier from 6th January 2024 and will be reflected in January payrolls.
The previously announced reductions in Dividend Allowance, from £1,000 to £500, and Capital Gains Tax, from £6,000 to £3,000 will proceed into the new tax year with no change to the associated tax bands.
No changes to Inheritance Tax were made therefore the current allowances and rules continue.
Investments
Individual Savings Accounts (ISA) subscription limits remain unchanged at £20,000 (£4.000 for Lifetime ISA & £9,000 Junior ISA). However, the Government will make changes to simplify the operation of these accounts as well as widening the scope of investments that can be included in portfolios. To simplify the scheme the government will:
Allow multiple subscriptions in each year to ISAs of the same type
Remove the requirement to make a fresh ISA application where an existing ISA account has received no subscription in the previous tax year
Allow partial transfers of current year ISA subscriptions between providers
Harmonise the account opening age for any adult ISAs to 18
Digitise the ISA reporting system to enable the development of digital tools to support investors
To widen the scope of investments, the government will:
Allow Long-Term Asset Funds to be permitted investments in the Innovative Finance ISA
Allow open-ended property funds with extended notice periods to be permitted investments in the Innovative Finance ISA
Engage with the finance industry on allowing certain fractional shares contracts to become permitted ISA investments
Much of this will either provide more flexibility with the way we can structure your ISA investments as well as ease of the administration intricacies that have existed for some time.
The new investment opportunities remain niche at this time and are part of the government's strategy to encourage wider investment in areas such as UK Infrastructure, Private Equity and Real Estate which have historically remained the domain of institutional investors. Examples of private market investments could include renewable energy infrastructure such as onshore and offshore windfarms. However, they also include investments in many sectors, including younger businesses in disruptive areas such as fintech, life sciences and artificial intelligence.
The operation of EIS & VCT schemes have been extended to April 2035, continuing the availability of income and capital gains tax reliefs for investors in qualifying companies in these markets. There is no change to the reliefs which stay at 30%, nor to the investment limits of £200,000 for VCT and £1m into EIS (£2m for Knowledge Intensive EIS).
Pensions
Triple Lock means State Pension will increase by 8.5% meaning a full new State Pension will be £221.20 per week (£11,502.40 per annum). It should be noted there is headroom of just £1,067.60 within the unchanged personal allowance of £12,570. Clients in pension drawdown may wish to review their incomes to optimise their income tax position.
The Annual Allowance (AA) is also unchanged, meaning an individual can pay up to £60,000 into a pension in the current tax year, with carry forward available for the previous three tax years. The AA is tapered where adjusted income exceeds £260,000 reducing to £10,000 for adjusted income over £320,000. Anyone subject to the Money Purchase Annual Allowance (MPAA) has an allowance of £10,000.
As announced in the Spring 2023 Budget, the Lifetime Allowance on Pensions is to be fully abolished in the new tax year. The Autumn Statement, along with an associated Policy Paper from HMRC, sought to clarify a number of points, namely:
How lump sums and lump sum death benefits will be taxed in the absence of the LTA
The position of individuals with LTA protections
Lump sum protections or LTA enhancement factors
The function of Benefit Crystallisation Events (BCEs)
The tax treatment of transfers to QROPS and all necessary transitional arrangements and reporting requirements
While we seek to discuss the key points of these changes, there is much surrounding detail and any of these measures announced remain potentially subject to change until enacted into legislation. The Autumn Finance Bill 2023 should be published before the end of the year and will then follow the usual parliamentary process prior to being passed into legislation following royal assent.
Authorised lump sums (e.g., Tax Free Cash) and lump sum death benefits will be tested against the present Lifetime Allowance of £1,073,100. Therefore, the maximum level of Pension Commencement Lump Sum will be £268,275 (except where Protections apply). This will be a personal limit and tested against all lump sums an individual receives from all registered pension schemes. Any lumps sums in excess of this limit will be taxed and the individual’s marginal rate of income tax. A transitional calculation exists where benefits are taken before 6th April 2024.
Where individuals hold valid enhanced or fixed Lifetime Allowance protections, the right to a higher level of tax-free lump sum will be retained. Where eligible, individuals can apply for Fixed Protection 2016 or Individual Protection 2016 before 6th April 2025. The removal of the LTA means that the standard LTA will not apply as a lifetime limit for all pension savings with effect from 6th April 2024.
All Benefit Crystallisation Events (BCEs) will be removed and RBCEs will be introduced instead. RBCEs are the payment of relevant lump sums and lump sum death benefits.
Following consultation, the government confirmed that current income tax benefits for beneficiary pension drawdown where the member dies before age 75 will be retained.
Other pension reforms
The Government has announced a comprehensive package of pension reform that will provide better outcomes for savers, drive a more consolidated pensions market and enable pension funds to invest in a diverse portfolio. These measures represent the next steps of the Chancellor’s Mansion House reforms and meet the 3 golden rules:
To secure the best possible outcomes for pension savers
To prioritise a strong and diversified gilt market
To strengthen the UK’s competitive position as a leading financial centre
Within this, the government is to consult on plans to give employees the legal right to have any new employer pay into their own chosen pension arrangement in a bid to achieve, at some future point, ‘one plan for life’. Given the nature of the consultation process and the potential infrastructural changes required to achieve this we would not expect to see this in place for many years. For now, the current workplace pension requirements and provisions remain very much business as usual.