Here’s an initial response to today’s Autumn Statement from the Private Client, Corporate Client and Investment Teams:
Private Client Team
Ahead of the statement Mr Hunt promised “tax rises for everyone and spending cuts”; a promise to which the MP for South West Surrey has seemingly stuck.
Some of the key measures and our initial thoughts are;
A reduction in the threshold at which the top-rate 45% tax is paid from £150,000 to £125,140
Formulating an income strategy with your Adviser that will utilise available allowances becomes increasingly important. Clients should continue to make full use of pension allowances to make use of the relief and reduction in net adjusted income.
Freezing tax thresholds to 2028
Keep under review, especially if you approach or start to breach the allowances such as the Lifetime Allowance (LTA) and the Nil-Rate Band (NRB) as the value of your capital continues to grow.
Capital Gains Tax (CGT) annual exempt allowance cut from £12,300 to £6,000 in April 2023 and then to £3,000 from April 2024
Tax-free investment vehicles like ISAs (Individual Savings Accounts) and pensions become increasingly important. So too does ensuring that full CGT allowances are utilised as part of the service Courtiers offers in the next couple of tax years. Despite, these cuts in the CGT annual exempt allowance, the fact remains that CGT is a good problem to have.
No impact on carrying forward losses. It’s important that these are reported to HMRC.
Dividend allowance reduced from its current £2,000 to £1,000 in April 2023 and £500 from April 2024
The dividend allowance is still useful for business owners. Company pension contributions could now be a more appealing proposition for extracting company profits in a tax-efficient manner.
Triple lock retained
For those clients receiving the state pension, it’s pleasing that the government has honoured its commitment to keep the triple lock, which will see it rise by 10.1% from next April. Clients should assess if this takes them into a higher rate income tax bracket and if necessary consider mitigating action.
Final thoughts from the Private Client Team
The Autumn Statement is a stark contrast to then Chancellor Rishi Sunak’s Spring Statement, which planned to “build a stronger economy by reducing and reforming taxes over the parliament.”
Corporate Client Team
In a bid to reassure markets, manage inflation and get the national finances in order, the new Prime Minister and Chancellor have taken significant steps in this Autumn Statement to show how the UK is a stable, prudent and responsible nation on the world stage.
A key announcement was the reduction in the Capital Gains Tax (CGT) personal allowance from the current £12,300 to £6,000 next year and then down to £3,000 in 2024. Quite a significant drop in the CGT tax-free allowance. It highlights the importance of working even more closely with your Adviser to consider the actions to save tax on growth by funding ISAs, registering losses and utilising joint allowances, where available.
Another major announcement was the reduction of the additional rate tax threshold from £150,000 to £125,140. Although initially this may seem a blow to higher earners, it may encourage more people to explore the redirection of taxable earnings into tax-efficient pensions.
As a result of the additional rate threshold reducing from £150,000 to £125,140 and £24,860 of earnings now pulled into the 45% tax bracket, the total tax on this amount will be £11,187 and individuals would still lose 100% of the personal allowance (£12,570).
I was however, pleased to see that the Chancellor decided against reducing the amount of tax relief on pension contributions, something many thought could happen. Opportunities therefore, still exist to boost retirement savings in a tax-efficient way, by redirecting taxable income into pensions. If for example, this £24,860 could instead be paid into a pension, tax relief on the contribution makes for a very simple way to save this 45% tax. Further tax relief and savings can also be made by increasing that contribution, however it’s important to consider the affordability of any contribution, as well as ensuring the amount is within your personal Annual Allowance (the maximum you can save into your pension in a tax year).
The Lifetime Allowance (LTA), which was frozen back in 2020/21 for a five-year period, will now be extended to 2028. Although a tax which can significantly impact members who breach this LTA threshold (up to 55% on anything above the LTA), certain protections may be available and this liability can be managed over time, with pensioners still keeping the lion’s share of their retirement savings.
There was some good news for those receiving their state pensions, with payments set to increase by 10.1% from April 2023. This will go some way to help shield retirees from the current inflationary pressures.
Although many of today’s decisions may not be welcomed by many, regular and careful analysis and skilled planning with your Courtiers Adviser can help you explore the opportunities available, despite a challenging economic backdrop.
After the adverse market reaction to the “mini-Budget” of September there was much interest in how long-term interest rates and share prices would respond to Jeremy Hunt’s new fiscal policies. Bearing in mind that our PM was himself a Chancellor, and Jeremy Hunt is an experienced Cabinet Minister, it was always likely that their combined experience would mean that they delivered no shocks – and they didn’t! There was one small wobble in 10-year gilt yields, which turned out to be no more than a flutter and they dropped back to opening levels quite quickly. This was in stark contrast to the response to Kwasi Kwarteng’s Budget just a few weeks earlier.
It will take me a little longer to understand the full implications of the new tax and spending measures, particularly as the OBR’s (Office for Budget Responsibility) forecasts, based on these new measures, are not published until the Chancellor has finished speaking, but I will cover anything of particular interest at our December seminars. In the interim, it seems that the PM and Chancellor have delivered something that seems to have eased the fears of nervous investors.
We’ll be following up in the coming days with a more detailed look at the Autumn Statement and the measures announced.