What does the Autumn Statement mean for financial plans?

Learning Objectives:

• To understand the economic background to and key objectives of the Autumn Statement.
• To understand the main announced changes to taxation that could have a direct or indirect impact on the financial plans of individuals.
• To understand the main announced changes to taxation that could have a direct or indirect impact on the financial plans of businesses and business owners.
• To apply that understanding in making effective and appropriate adjustments to financial plans.

It’s self-evident that being tax efficient through all stages of a client’s financial planning journey can contribute to achieving their 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 with your clients, is so important.

Ahead of the 2023 Autumn Statement, there was much media speculation about the tax cuts (especially to inheritance tax) that the Chancellor may or may not be able to make, whilst responsibly supporting economic growth

The stated backdrop to the announced changes was one of reducing (though still high) underlying debt, controlled “new “ borrowing, increasing (albeit slightly) growth and reducing inflation. Interest rates, whilst reduced from their recent highs, are still materially higher than they were not that long ago

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 biggest changes that will affect individuals in work relate to national insurance (NICs).

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 profits 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 and certain other State Benefits remain unchanged. Those with profits too low to qualify for a NICs credit (towards their State Pension/State Benefits) will still be able to pay flat rate Class 2 contributions voluntarily.

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 both tax and NICs effective. Of course, it also remains important that advisers discuss “remuneration strategy” with their SME clients so that appropriate thought is given to the optimum way to remove funds needed personally – by dividend or salary. When relevant, the reduction in the employee’s Class 1 contribution rate will need to be factored in. Note that the calculation of NICs for directors is based on their full tax year income. This means that a pro-rata employee's Class 1 NICs rate of 11.5% will apply to directors in 2023/24.

For investors and savers, the maximum amount that can be contributed each year to an ISA or JISA will remain unchanged. Some changes are proposed to take effect from 6 April 2024 that will simplify these plans and make them even more flexible:

• It will be possible to pay into multiple ISAs of the same type in each tax year. This is a reversal of the current system – which limits an individual to subscribing to (paying into) just one ISA of each type per tax tear.
• There are five types of ISA – cash ISAs, stocks & shares ISAs, Lifetime ISAs, innovative finance ISAs, and Junior ISAs – and an individual can currently choose whether they want to invest the whole, up to £20,000, annual ISA allowance in to one type of ISA, or whether they want to split the allowance between the different types.
• While it's not currently possible to pay new money into more than one of any of these in a given tax year, from next April this will be possible. This will make things simpler for both cash savers and investors – cash savers will be able to open multiple new cash ISAs as new deals with higher interest rates become available, while investors will more easily be able to try out different stocks & shares ISA providers, for example.

• It will be possible to carry out partial transfers of ISA funds regardless of when the investment was made. Currently, partial transfers of funds are only possible for funds that an individual has paid in before the current tax year – if they want to move money they've paid in since 6 April in a tax year, they need to do so in full.
•   The account opening age for any adult ISA will be harmonised to 18 from 6 April 2024. Currently, an adult cash ISA can be opened from age 16. In future, it will be age 18 for all adult ISAs. This means, therefore, someone aged 16 or 17 now might want to consider opening, and putting money into, a cash ISA before 6 April next year.

Despite some “pre-statement” speculation, no changes to inheritance tax or capital gains tax were announced.

side from the changes to NICs 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 NICs changes, announcements were made: 

- To increase the National Minimum Wage/National living Wage to £11.44 per week;

- 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. 

In relation to pensions, a raft of papers was issued covering various aspects of pension schemes. These included:

• Clarification on the impact of the abolition of the Lifetime Allowance from 6 April 2024.
• A paper on digitising the existing framework for providing tax relief at source on pension contributions.
• A call for evidence on the introduction of a ‘lifetime provider model’, eventually allowing individuals to have one pension pot for life, which moves with them as they change employer.
• A further call for evidence on how defined benefit (final salary) pension schemes can increase investment in ‘productive finance’, i.e. investment providing equity capital and finance for UK businesses, including start-ups, infrastructure and private equity, as well as longer-term investments, typically in illiquid assets.

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 will be of real benefit regarding business costs for employers. The rise in the minimum wage may increase costs for some businesses and the NICs reductions were for employee contributions only. 

With the tax and benefit system becoming ever more complex, and the continued importance of tax efficiency to achieving financial objectives, it is essential for clients to regularly discuss their financial goals with their advisers. This will ensure that, in light of what is important to them and changes to the tax and financial context, their plans are fully aligned to the achievement of their goals. Taking an evidenced, client centric approach to the review (and, if necessary, adjustment) of the financial plan in the light of legislative developments will also materially contribute to the achievement of key Consumer Duty outcomes.