Techzone

The Chancellor delivered his Autumn Statement today announcing various measures designed to stimulate growth in the economy. These included cuts to National Insurance and confirmation that the triple lock will be maintained. There was also the announcement of a new ‘pot for life’ pension consultation and further details on the abolition of the lifetime allowance.

The measures most relevant to advisers and their clients are summarised below.

National Insurance

The tax cuts for individuals to help stimulate growth were delivered by making changes to NI rates that will benefit both employees and the self-employed.

Employees

The main rate (Class 1) will be cut by 2%. The new rate of 10% will apply to earnings between the primary earnings threshold and the upper earnings limit, giving a maximum saving of £754 pa (£37,700 x 2%).

This measure will start from 6 January next year.

There are no changes to the actual thresholds, and these will remain at 2023/24 levels.

Self-employed

Class 2 NI will be abolished from April for those with annual profits exceeding £6,725. The current weekly rate is £3.45. Individuals will still get access to contributory benefits, including the State Pension.

Those with earnings below £6,725 must pay voluntary Class 2 contributions if they wish to retain access to the State Pension and other benefits, although there could be further changes to this next year. The rate for those who wish to do so will be frozen at £3.45 per week.

Self-employed also pay Class 4 NI contributions on profits between the lower and upper profits limit (up to £37,700). From April, the rate will fall by 1% to 8%, representing annual savings of up to £377. The rate applicable to profits above the upper profits limit will remain at 2%.

There will be no change to the actual limits and thresholds for Class 2 or Class 4 next year.

Employer

There were no changes to employer rates of NI which will remain at 13.8%.

Abolition of the LTA

Alongside the Treasury documents, HMRC published some further details on the new pensions regime for 2024/25, where the lifetime allowance (LTA) will be completely abolished, and two new allowances come into play – the lump sum allowance and the lump sum & death benefit allowance.

Of particular note, DC funds used by beneficiaries to go into drawdown or to buy an annuity will continue to be tax free for the beneficiary where the member died before age 75. A previous policy document mentioned that on the death of the member such benefits would become taxable.

A summary of these issues along with confirmation of other details concerning the abolition of the LTA can be found in our separate article. This includes updates on:

• Trivial lump sums and small pots
• Scheme-specific tax free cash
• Overseas transfers
• Impact on the new allowances for benefits taken before 6 April 2024

Pension pot for life consultation launched

A call for evidence will be launched on a lifetime provider model which would allow individuals to choose which pension scheme contributions are paid to, rather than the scheme chosen by their employer - to reduce the number of small pots created when employees change jobs and a move towards having one pension pot for life.

Following a recent consultation, the Government’s response confirms it will introduce a multiple default consolidator model to enable a small number of authorised schemes to act as a consolidator for eligible pension pots under £1,000.

State Pension

It was confirmed that the triple lock on State Pensions would be maintained, guaranteeing the 8.5% earnings-based increase for next April. The increase will also apply to Pension Credit.

This means that the full New State Pension will increase to £221.20 a week from April. We expect the Basic State Pension to increase to £169.50 a week (single person) or £271.05 a week (married couples and civil partners). 

ISA changes

There were no changes to the ISA subscription limits which will remain at £20,000 for adult ISAs and £9,000 for Junior ISAs.

The Chancellor did announce the ‘one ISA of each type per tax year’ restriction will be removed from April 2024. This simplification will mean investors will be able to subscribe to multiple cash or stocks and shares ISAs in a year without fear of invalidating their subscriptions leading to a loss of tax free status on their savings.

From April 2024 it will also be possible to do partial transfers of ISA funds. Currently there are separate rules for the transfer of current and previous years subscriptions. While it is possible to do a partial transfer of previous years subscriptions, transfers of current years subscriptions must be for the whole amount including the attributable investment growth. This will be relaxed from April allowing partial transfers to apply to all ISA subscriptions whenever they were made.

The age at which an adult ISA can be opened will fixed at 18 across all ISA types from April. This will mean it will no longer be possible to open an adult Cash ISA at age 16, removing the ability for 16 and 17 year olds to pay £29,000 into ISAs by combining contributions into both a Cash ISA and Junior ISA.

Inheritance tax

Despite intense speculation ahead of the autumn statement that IHT might be either abolished or the rate cut, the Chancellor made no changes. The nil rate band will remain frozen at £325,000 and £175,000 for the residence nil rate band.

Income tax and capital gains tax

There was no mention of any changes to the rates and allowances for income tax and capital gains tax.

Income tax

It is expected that the personal allowance and basic rate bands for income tax will remain at £12,570 and £37,700 respectively. The threshold for additional rate tax will remain at £125,140.

Earned income rates and thresholds for Scottish taxpayers will be confirmed by the Scottish Government at a future date.

With regards to dividends, the dividend allowance will be halved from £1,000 to £500 for 2024/25. The dividend tax rates for basic rate, higher rate and additional rate taxpayers will remain at 8.75%, 33.75% and 39.35%.

Capital gains tax

As announced last year, the CGT annual exemption will be cut from £6,000 to £3,000 from April 2024. Rates will remain at 10% for gains falling in the basic rate band, and 20% for everything over (18% and 28% respectively for gains on residential property).

Corporation tax

There were no further changes to the rates and thresholds. The main rate will remain at 25% and the rate for small companies with profits below £50,000 continues at 19%. There’s tapering relief for businesses with profits between £50,000 and £250,000 so that they also pay less than the main rate.

‘Full expensing’ will be made permanent which broadly allows investment expenditure to be fully deductible immediately.