Update on the November Autumn Statement

Wednesday 22 November, 2023

The Autumn Statement included the announcement that National Insurance (NI) rates are to be reduced and class 2 NI abolished.

Details around the abolition of the Lifetime Allowance from April have been published. 

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’.

There were no announcements on changes to inheritance tax.

Any 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.

We have summarised the main points below, along with a reminder of various changes from April 2024 that we were already aware of.  For more detailed information about how the changes affect your finances contact your Lonsdale Wealth Management independent financial adviser.
 

Pensions

Abolition of Lifetime Allowance (LTA) from 6 April 2024

The detail published alongside the Autumn Statement clarifies:

• 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

Lump sums and lump sum death benefits

The taxation of pension income will be through the existing income tax structure for pension income. Authorised lump sums and lump sum death benefits will be tested against a new threshold, set at the same level as the present LTA, £1,073,100. Individuals will not pay tax where lump sums do not take them above this level. Any lump sums paid above this level will be taxed at the individual’s or beneficiaries’ marginal rate of income tax.

State pension

Triple lock means new state pension and basic state pension will increase by 8.5% in April 2024. Full new state pension figure will be £221.20 per week.

Other pension reforms

At the Autumn Statement 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:

1. To secure the best possible outcomes for pension savers
2. To prioritise a strong and diversified gilt market
3. To strengthen the UK’s competitive position as a leading financial centre

The package sits alongside the government’s comprehensive capital market reforms, to boost the attractiveness of markets, and make the UK the best place to start, grow and list a company.

Investments

Individual Savings Accounts

The annual subscription limits all remain at their current levels in 2024/25, i.e.

• £20,000 ISA
• £4,000 Lifetime ISA
• £9,000 Junior ISA (and Child Trust Fund)

The government will make changes to ISAs to simplify the scheme and widen the scope of investments that can be included in ISAs.

EIS/VCT

The operation of the EIS and VCT scheme is extended from April 2025 to April 2035, continuing the availability of income and capital gains tax reliefs for investors in qualifying companies and VCTs.

Legislation will be introduced in Autumn Finance Bill 2023 to replace the existing dates within the sunset clauses of 6 April 2025 with the new end dates of 6 April 2035.

The changes would take effect in accordance with regulations made by HM Treasury. These changes are subject to domestic and international subsidy obligations being met.

Taxation

Income tax

All income tax rates and bands remain at their current levels in 2024/25. 

National Insurance Contributions (NICs)

Employees

• The main rate of Employee National Insurance (Class 1 NICs) is being reduced by 2p from 12% to 10%, from 6 January 2024, for 27 million workers.
• Employees will benefit from January, as their employers make changes to their payroll system.
• The Lower Earnings Limit – the point at which employees start to receive NI credits - has been frozen at £6,396, in line with last year’s approach. 
• Individuals will continue to be able to pay voluntary Class 3 NICs to help fill gaps in their National Insurance record to qualify for the State pension, exactly as before. 

Self employed

• The main rate of Self-employed National Insurance (Class 4 NICs) is being reduced by 1p from 9% to 8% from April 2024, for around 2 million people. This takes effect on 6 April 2024.
• From 6 April 2024, self-employed people with profits above £12,570 will no longer be required to pay Class 2 NICs, but will continue to receive access to contributory benefits including the State Pension.
• Those with profits between £6,725 and £12,570 will continue to get access to contributory benefits including the State Pension through a National Insurance credit without paying NICs, as they do currently.
• 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. The weekly rate they pay will be frozen at £3.45 for 2024/25, rather than rising by CPI to £3.70.
• The Small Profits Threshold - the point at which the self-employed start to receive National Insurance credits - has been frozen at £6,725, in line with last year’s approach.

Dividend allowance

Reduces from £1,000 to £500 on 6 April 2024. Dividend tax rates remain the same at 8.75% in basic rate band, 33.75% in higher rate band and 39.35% in additional rate band (and 39.35% for discretionary trusts).

Capital gains tax

Annual exemption reduces from £6,000 to £3,000 on 6 April 2024 (a maximum of £1,500 for discretionary/interest in possession trusts – shared between all settlor’s trusts subject to a minimum of £600 per trust).

CGT rates remain as they currently are:

• 10% for any taxable gain that doesn’t fall above the basic rate band when added to income and 20% on any gain (or part of gain) that falls above the basic rate band when added to income
• For residential property gains these rates increase to 18% and 28% respectively
• Discretionary/interest in possession trustees pay at the higher rates (20%/28%)

Inheritance Tax

No changes were announced in the Autumn Statement. All rates and tax free bands remain at current levels in 2024/25. 

Simplifications for trusts and estates

From April 2024 trustees and personal representatives of estates will no longer have to report small amounts of income tax to HMRC and taxation of estate beneficiaries will be simplified, as shown below:

• Trusts and estates with income up to £500 will not pay tax on that income as it arises
• The £1,000 standard rate band (effectively basic rate band) for discretionary trusts will no longer apply
• Beneficiaries of UK estates will not pay tax on income distributed to them that is within the £500 limit for the personal representatives

In summary...

For more detailed information about how changes in the Autumn Statement affect your finances, call your Lonsdale Wealth Management independent financial adviser, or complete our booking form for an initial consultation with one of our consultants.

 

 

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