Being tax efficient through all stages of your financial planning journey can contribute to achieving your financial goals. That’s why being aware of the challenges and opportunities that tax, and benefit changes bring and discussing them and what they might mean for you with your adviser is so important.
Ahead of today’s Autumn Statement, there was much media speculation about the tax cuts that the Chancellor may or may not be able to make while responsibly supporting economic growth.
The announced backdrop to the changes was reducing (though still high) debt, controlled borrowing, increasing (albeit slightly) growth, and reducing inflation.
The following is a summary of the changes announced in the Chancellor’s “Autumn Statement for Growth” that could affect the tax and financial plans of individuals and businesses, together with a brief reminder of some important unchanged provisions relevant to financial planning.
Relevant for individuals:
The most significant changes for individuals in work focused on national insurance.
For the self-employed, it was announced that from 6th April 2024, they will no longer have to pay flat rate Class 2 contributions, saving them £3.45 per week or £192 per year. In addition, the class 4 rate, payable on profit between £12,570 and £50,270, will fall by 1% from 9% to 8%. This is estimated to result in an average annual saving of £350. The rules for qualifying for the State Pension remain unchanged.
From 6th January 2024, the main rate of Class 1 employee NICs will be cut from 12% to 10%. This will provide a tax cut for 27 million working people, with the average worker on £35,400 receiving a tax cut in 2024-25 of over £450.
For both the self-employed and employees and directors, it is worth remembering that although these welcome reductions have been announced, pension contributions remain tax and national insurance effective.
For investors and savers, the maximum amount you can contribute each year to an ISA or JISA will remain unchanged. Some proposed changes will simplify these plans and make them even more flexible.
Despite some “pre-statement” speculation, no changes were announced about Inheritance tax or Capital Gains tax.
Aside from the changes to national insurance described above, all other personal tax thresholds, exemptions, and allowances remain unchanged and, in many cases, frozen until 5th April 2028. As a result the numbers of basic rate , higher rate and additional rate taxpayers will continue to grow as will , in all likelihood , the need and demand for informed tax and financial planning.
As well as the national insurance changes announcements were made:
- To increase the National Minimum Wage to £11.44 per hour
- To refine and improve the Universal Credit and Housing Allowance Rules
In relation to the State Pension we saw the Triple Lock maintained with the full 8.5% maximum being applied from April 2024, even though there was plenty of speculation beforehand that this would be cut to a lower level.
A pension announcement that will no doubt make headlines will be a “pot for life” where you may be able to ask your employer to pay your workplace pension contributions to a scheme of your choice. However, this is only a call for evidence and will have a long way to go before it becomes available.
Relevant for businesses:
The main “headline-grabbing” measure proposed for businesses (other than the NIC reductions for the self-employed) was that “full expensing” of expenditure by companies on qualifying capital equipment, e.g., plant and machinery, computers, and software capital expenditure, will become permanent beyond the April 2026 expiration date. This means that 100% of qualifying expenditure made by companies will continue to be fully deductible from taxable profit. A no doubt welcome announcement given the continuation of the relatively recently increase of the main rate of corporation tax to 25%.
There was little in the announcement that would be of real benefit regarding the business costs for employers. The rise in the minimum wage may increase costs for some businesses and the national insurance cuts were for employee contributions only.
With the tax and benefit system becoming ever more complex and the continued importance of tax efficiency to achieving your financial objectives, it is essential to regularly discuss your financial goals with your adviser to ensure that, in light of what is important to you and changes to the tax and financial context, your plan is fully aligned to their achievement.
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The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.
SJP Approved 22/11/2023