What does the Autumn Statement mean for our private clients?
The long awaited autumn statement has arrived. Billed as a statement to balance the books within the context of significant economic turmoil, what are the key points from the autumn statement for our clients considering their wills, estates and succession planning?
Lots of small ‘nips and tucks’ rather than fewer big measures, seems to have been the order of the day. Controversial maybe and perhaps inevitably upsetting more people than it pleases, here we consider a few of the key measures likely to affect our private (rather than business) clients:
a. Nil rate band frozen at £325,000
Billed by the media as a raid on the bereaved, Jeremy Hunt has confirmed that the nil rate band will remain frozen at £325,000. The nil rate band (NRB) is the tax free amount that can be passed on death to non-exempt beneficiaries (most people other than a spouse or charity). In reality, this news comes as no great shock, it was already frozen until 2025 – now extended until 2028. The NRB has remained static since 2009. This long term freeze, coupled with rising property prices, has seen a huge increase in the number of estates liable to pay inheritance tax.
It is perhaps worth remembering that, for qualifying families, there was a cushion provided when the residence nil rate band (RNRB) was introduced in 2017. This is an additional sum which can be passed to direct lineal descendants (children, grandchildren) via the value of the family home. Starting at £100,000 this steadily increased to £175,000 from 2020/21. Where the deceased was or is married, the RNRB (like the NRB) passes unused between spouses so that on the death of the second spouse the combined effect of these nil rate bands allow qualifying families to pass up to £1m of assets before incurring an inheritance tax liability.
What is important is to plan carefully to ensure that one makes the most of the nil rate bands available and of any other inheritance tax exemptions such as business or agricultural property relief.
a.Income tax and national insurance threshold frozen
Freezing the tax free threshold for income tax and national insurance will draw more low earners into tax liability, particularly with the increase in the living wage and pay rises to soften the blow of the increased cost of living. It will also increase the tax burden on those already paying income tax. Widespread concerns have been voiced about the effect of this on the ‘working poor’ and ‘tightly squeezed middle) (particularly in light of the news that benefits will rise with inflation but cost of living support will be withdraw from the middle). Whilst people may fear feeling the freeze now, it is the longer term outlook that may cause lower earners the main concern with the freeze set to hold until April 2028.
b. Higher rate income tax threshold reduced
In stark contrast to the (perhaps more) shock announcement of the last Chancellor that the highest (45%) rate of tax was to be abandoned, Jeremy Hunt has announced that not only will the 45% tax rate remain but the threshold for liability will now drop to those earning £125,140 rather than £150,000 as before. This will bring a larger number of people into the higher rate bracket and increase the tax for those already in it.
Planning for the future, and increasing pension contributions (the upper savings limit for which has not changed) becomes all the more important (see below regarding the state pension).
2.Capital Gains Tax (CGT)
a. Dividend Allowance
Whilst the feared increase in the CGT rates to match income tax has not taken place, there has nevertheless been bad news for savers and asset holders, with the announcement that the dividend allowance will fall by 50% from £2,000 to £1,000 next tax year (2023/4) and a further 50T to £500 in 2024/25.
b. Annual Exempt Amount (AEA)
There is a similar fall for the AEA which is the limit on gains which one can make before tax becomes payable. Currently £12,300, this will drop to £6,000 in the next tax year and to £3,000 in 2024/5. This will no doubt result in a significant increase in the number of people being liable for capital gains tax when selling (or gifting) assets as well as higher liabilities for those already exposed to taxable gains.
Now is the time to take stock of your assets. It is worth remembering that gifting an asset will give rise to capital gains tax as if the asset had been sold at market value. If you are thinking of gifting assets to the next generation, advice should be taken on the timing of the gift and prudent use of trusts to minimise exposure to CGT.
On the flip side of the various tax increases, pensioners will see their state pension income rise by a record level this year as the triple lock guarantee is maintained ensuring that state pension will rise in line with inflation. Great news for pensioners, but the fear is that there will be a price to pay in the future with some commentators speculating that the rise in the age of retirement will have to take place sooner if the triple lock is to continue to be maintained. This is doubtless of concern for those budgeting for retirement. See the comment above regarding increasing private/ employee pension contributions.
Given the above and the general economic turmoil, now is not the time to delay careful estate and succession planning.
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