29 Nov 2022

The Autumn Statement – What was Announced and How it Affects You

On the back of months of economic turmoil, the Chancellor Jeremy Hunt’s autumn statement aimed to stabilise jittery markets and restore confidence in the British economy.

And much to his undoubted relief, unlike his predecessor Kwasi Kwarteng, Jeremy Hunt’s autumn statement did not trigger meltdown in the markets and a sell-off of government bonds. Nor were there many nasty surprises for investors. This can be considered a triumph of sorts against a gloomy backdrop of high inflation, falling wages, a £50 billion black hole in public finances, and energy price hikes driven by Russia’s war in Ukraine.

#1 So how will the autumn statement affect you?

The good news ends there, however. Following the measures announced in the autumn statement, the tax burden will stand at levels not previously seen since the end of the second world war. According to the Institute for Fiscal Studies, Britain is entering a ‘new era of higher taxation’. Most people will be paying higher rates of tax and this should have an impact on their investment decisions.

Britain is entering a ‘new era of higher taxation’. Most people will be paying higher rates of tax and this should have an impact on their investment decisions.

#2 Dividend Allowance and Cash on deposit

For the first time in over a decade, interest rates are increasing as the Bank of England attempts to control spiralling inflation. This means you’re getting more interest on your money if you have deposits. However, the treasury has now wised up to this and is hiking the amount it claws back in tax.

Changes to the dividend allowance (DA) – the amount of dividend income you do not have to pay tax on - will see it fall from £2,000 in the current year to £1,000 in 2023/24 and £500 from April 2024. This means a higher-rate taxpayer with dividend income of £5,000 in the 2023/24 tax year could pay £1,350 in dividend tax, rising to £1,518.75 in 2024/25. This compares with £1,012.50 currently.

Changes to the DA will increase the attractiveness of ISAs as investments held there are tax-free. Married couples or those in civil partnerships may be advised to spread their dividend-producing investments in a way that maximises each individual’s dividend allowance.

Key Point:

Higher interest rates mean, you could in future be paying income tax on both your deposit interest and dividend income return on your money if they exceed the new reduced thresholds. Please contact us if you would like to discuss interest earnings on your cash funds in particular.

#3 Capital Gains

The chancellor announced that the Capital Gains Tax Annual Exempt Amount would be reduced from 6 April 2023 to £6,000 per individual, with a further reduction pencilled in from 6 April 2024 to £3,000 per individual.

Key Point:

With CGT thresholds coming down, it’s going to be harder to manage gains that go above the new threshold. This shows the importance of ISA’s as tax-free havens for dividends. Outside of investment bonds and ISAs, there are no comparable alternatives, that are tax free. Please also contact us if you’ve recently made a gain from an asset and are unsure whether it needs to be declared on a tax return.

#4 Inheritance Tax

The chancellor’s decision to freeze tax thresholds will (again – notice a pattern here?) mean that most people end up paying more tax. The freezing of the inheritance tax nil-rate band at £325,000 and the residence nil-rate band at £175,000 until 2028 will see more families dragged into the inheritance tax net if property prices continue to rise.

Key Point:

It is important that you are aware of the likely impact of frozen thresholds on your inheritance tax liabilities. Please reach out to your advisor if you would like to ensure your Will is up-to-date and tax efficient

#5 Pension Contributions

The chancellor retained the ‘triple-lock’ on pensions, meaning the state pension will increase in line with inflation by 10.1% in April 2023. This adds up to an additional £870 a year for those who qualify for the full state pension. Pensions tax allowances will also remain the same.

The sting, however, is in the detail: the freezing of the personal allowance and basic rate bands will mean more individuals falling into the higher rate tax band. This is effectively a ‘stealth tax’: by freezing tax bands the chancellor is increasing the tax take without increasing the rate of tax. This funnels more money to the treasury to start to plug its £50 billion black hole.

Additional rate tax relief will be available on pension contributions where taxable income exceeds £125,140. Higher and additional-rate taxpayers can also continue to benefit from tax relief of up to 40% and 45% respectively.

Key Point:

It is a fact that most people will be paying higher rates of tax following this budget. Yet with smart pension planning some of the pain can be avoided. For example, by making a pension contribution you can grow your basic rate tax band and avoid some of the new taxes. The same is true when it comes to making a charitable donation.

Are you confused about any of the announcements contained in the autumn statement?

Get in touch with one of our specialist advisors to talk things through.

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