Autumn Budget Statement 2023

Despite the 110 separate measures proposed by Jeremy Hunt yesterday there were very few surprises amongst them.

Tax

The most headline grabbing is clearly the reduction from January 2024 in main rate Class 1 National Insurance from 12% to 10% – for the average employee this would represent a cut in NI of £450 pa.

In addition, there were NI cuts for the Self-Employed, with Class 2 contributions being abolished from April 2024 and Class 4 reducing from 9% to 8% at the same time, benefitting around 2 million individuals. The combination of these cuts would result in a saving of £350 pa for the average self-employed person.

Other individual taxation was left unchanged. Income tax remains the same, with allowances frozen, leading more people to be pushed into higher tax brackets as earnings grow. Capital Gains tax is also unchanged, and allowances will reduce to £3,000 per individual from April 2024 from the current £6,000.

Rumours around Inheritance Tax were rife over the past week, however ultimately no changes materialised. This may be something that is revisited in April 2024.

Savings / Investments

Whilst taxation on savings and investments remained broadly unchanged, there were some announcements around ISAs and Pensions that were of interest.

ISA allowances have remained unchanged across the board for 2024/25, however a series of proposed changes were announced around how they can be utilised:

  • 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 ISAs but Cash ISAs will go from 16 years old to 18 from April 2024.

Pensions

The government confirmed that the lifetime allowance will be abolished by April 2024. This will be replaced by a restriction on lump sums, either to 25% of the latest lifetime allowance figure (£268,275) or 25% of a pension holders ‘protected’ lifetime allowance amount if greater. Anything above this will be taxed at the recipient’s marginal tax rate.

There is also a proposed change to death benefits for pension holders who die before age 75. The amount that can subsequently be drawn tax free by the beneficiary will be limited to the latest lifetime allowance figure (£1,073,100) or the full ‘protected’ amount if greater.

The overall effect of these changes is that lump sums and death benefits are treated broadly similarly to how they were before, however the mechanics have altered somewhat.

Employee Pensions

Mr Hunt spoke about the concept of a ‘Pot for Life’ yesterday, as a means to avoid the issue of employees ending up with multiple small pension funds as they change jobs. This would enable employees to dictate where their pension contributions went, rather than the current system where the employers decide on the scheme. Whilst any steps to simplify pensions for employees is welcome, the government has yet to go through the ‘call for evidence’ process to establish the practicalities of this – it will be interesting to see how this develops.

Other Measures

It was confirmed that the state pension will increase by 8.5% in April, with the ‘triple lock’ being maintained. This will result on the new full state pension being £221.20 per week from April. Benefits for working age people, including universal credit, will increase by 6.7% at the same time.

The National Living Wage (formerly minimum wage) will increase by 9.8% to £11.44 per hour, again from April. The age threshold for this will also reduce from 23 to 21.

Summary

With an election looming next year, this was always going to be a budget announcement with measures designed to appeal to the broader public. The headline NI cuts and honouring of full benefit increases are a clear indication of that, however, are offset somewhat by the lack of changes to other tax allowances, especially income tax.

As, please get in touch with your adviser if you have any queries regarding these latest announcements, or any other aspect of your finances at this stage.