Autumn Statement 2023

The Chancellor was faced with a difficult balancing act trying to manage the desire to keep the rate of inflation under control coupled with calls for tax cuts. Better than expected public finances allowed him to help individuals with a cut to national insurance contributions and an uprating of all working age benefits in full, by inflation (6.7%), and an increase in the state pension, via the Triple Lock, by 8.5%.

For pensions, the lifetime allowance abolition is still set for April 2024 and the Chancellor announced a number of proposals to support his Mansion House reforms to enable pension funds to invest in productive finance.

The following summarises the announcements impacting individuals.

Income Tax

Despite rumours of a decrease in income tax rates these remain unchanged. See the tax tables below for current rates.

Capital Gains Tax

There were no additional changes to the Capital Gains Tax rates or allowances.  But remember that from 6 April 2024, the individual annual exemption allowance will reduce to £3,000.

Inheritance Tax

The potential Inheritance tax rate changes swirling in the press last week did not materialise.  One to watch for the Budget 2024.

National Insurance (NI)

There was a triple ‘giveaway’ on NI:

1. The main rate of Class 1 employee NICs will be cut from 12% to 10% from 6 January 2024. This will provide 27 million working people with a prompt increase in net pay, with the average worker on £35,400 receiving a tax cut of over £450.
   There was no change to the employer rate remaining at 13.8%.

2. For the self-employed, the first of two cuts will see the main rate of Class 4 self-employed NICs reduce from 9% to 8% from 6 April 2024. This will benefit around 2 million individuals.

3. The self-employed currently must pay two separate NICs charges to access contributory benefits. The Government will provide the second cut for those earning £6,725 and above by abolishing Class 2 NICs from 6 April 2024 whilst maintaining access to contributory benefits, including State Pension.
   For those with profits under £6,725 and others who pay Class 2 NICs voluntarily to get access to contributory benefits including the State Pension, will continue to be able to do so at the current rate of £3.45 per week (was due to increase to £3.70 but will not now). 

Together these two cuts will provide an average self-employed person on £28,200 with a saving £350 in 2024-25.

Individual Savings Account (ISA)

The ISA (£20,000), Junior ISA (£9,000), Lifetime ISA (£4,000 excluding Government bonus) and Child Trust Fund (£9,000) limits will remain at their current levels for 2024-25

A raft of welcome changes announced were:

• The one ISA of each type rule will be abolished – a saver will now be allowed to subscribe to multiple ISAs of the same type every year from April 2024.

• The full transfer of current year subscriptions rule will also be abolished – a saver can now partially transfer current year subscriptions in-year between providers from April 2024.

• Fractional shares will now be permitted investments within an ISA.

• Adult ISAs will be harmonised so that they are available to age 18 and over. This currently applies to Stocks and Shares ISA but Cash ISAs will go from 16 years old to 18 from April 2024.

• Permitted investments within an Innovative Finance ISAs will be expanded to include Long-Term Asset Funds and open-ended property funds with extended notice periods from April 2024.

• Finally, ISA reporting will be digitalised enabling the development of tools to support savers and the requirement to reapply for an existing ISA annually (where no subscriptions made) will be removed from April 2024.

Pensions

Abolition of the Lifetime Allowance

The Government confirmed the abolition of the Lifetime Allowance will still go ahead from 6 April 2024. The Finance Bill will be introduced to parliament shortly and we will be scouring it to provide you with a detailed analysis of the changes and how it will impact your clients. We have been attending HMRC working groups throughout this year to keep abreast of HMRC and Treasury thinking.

Pot for Life

Currently, eligible new employees must be automatically enrolled into a pension scheme of their employer’s choosing. The Government has announced a ‘pot for life’ proposal that will change this by ensuring the pension pot can move with the employee from job to job, which will help resolve the proliferation of small pots caused by the current system. Initially the Government will launch a call for evidence on this lifetime provider model,  so that when the member joins a new employer rather than joining a new auto enrolment scheme they can require the employer to pay into their existing pension.

The Government will also introduce the multiple default consolidator model to allow a small number of schemes to act as a default consolidator for small pot schemes, those under £1000.

Investment for growth through pension funds

The Chancellor confirmed his plans to use pension funds to invest for growth, as outlined in his Mansion House reforms in the Summer. The Government has an agenda to increase the investment in alternative assets like start-ups, infrastructure, private equity, as well as longer-term investments that are typically illiquid in nature (refered to as ‘productive finance’). The Government has confirmed that it will establish a Growth fund with the British Business Bank to give pension schemes access to such investments to promote ‘the UK’s most promising businesses’. It has also committed to create new investment vehicles to support the UK’s most promising science and technology businesses under its Long-term Investment for Technology and Science initiative.

Defined benefit pension proposals

The DWP will be launching a consultation this winter for the implementation of a mechanism for surpluses in Defined Benefit schemes to be repaid. This is hoped to encourage defined benefit pension schemes to invest for growth, building up larger surpluses, and sharing those with the employer. The Government indicate that that current tax rate of 35% on such returns will be reduced to 25%. The relaxation on surplus extraction will be accompanied with proposals to allow employers who opted for this new surplus regime to pay a ‘super levy’ to the Pension Protection Fund to secure 100% cover for members benefits. The thinking is that with members benefits fully protected Trustees will be able to take on an increased level of investment risk than they do currently.