The headline announcement in the Autumn Statement was the reduction in the main rate of Class 1 National Insurance Contributions (NICs) paid by an employee. Whilst speculation had mounted prior to the Statement that the cut to NICs would be 1%, Jeremy Hunt extended the cut to 2%, reducing the main rate (i.e. the rate payable on earnings between £12,570 to £50,270) from 12% to 10%. This will take effect from 6th January 2024 and provide a maximum saving of £754 per annum.
From the perspective of pension contributions, many employers now offer Salary Sacrifice arrangements, which provide NICs savings for both employers and employees. The reduction in the main rate of Class 1 NICs does slightly reduce the benefit achieved from a Salary Sacrifice arrangement; however, such an arrangement remains a tax-efficient way to structure regular pension contributions.
For the self-employed, Class 2 contributions have been abolished for those with profits above £6,725 a year. The main rate of Class 4 contributions has been reduced from 9% to 8% on profits between £12,570 and £50,270. Employer rates of NICs remain unchanged at 13.8%.
Extended support for VCT and EIS
The Statement confirmed continued support for Venture Capital Trust (VCT) and Enterprise Investment Schemes (EIS) until 2035, which is welcome news. VCT and EIS were previously subject to a “sunset clause” which would have ended tax relief on investment in new VCT and EIS shares in 2025. The announcement provides clarity to the sector and continues to underline the Government’s intention to support small and growing businesses with funding through tax efficient investments.
Pension rules clarified
Following the announcement in the Spring Budget 2023 that the Lifetime Allowance for pension savings is to be abolished, the Treasury and HMRC have provided further guidance on how the new regime will operate from 2024/25. The most important clarification was in respect of the tax treatment of funds in a Defined Contribution pension, where the member dies before the age of 75. Subject to confirmation in the Finance Act, it appears that annuity and drawdown income payable to nominated beneficiaries will remain tax-free beyond 6th April 2024.
IHT – no change…yet
Despite significant press speculation in the run up to the Autumn Statement, no announcements were made to alter the current Inheritance Tax (IHT) rules. Treasury receipts from IHT continue to grow year on year, and reducing or abolishing IHT would leave a gap in the public finances that would need to be filled elsewhere. It therefore remains the case that careful planning is needed to consider whether any mitigation to reduce or eliminate exposure to IHT is required.
Given that there is at least one more Budget before the next general election, we would not entirely rule out changes to IHT next year; however, it is likely that families will still need to consider and plan ahead to ensure that intergenerational wealth is cascaded in a tax-efficient manner.
Whilst some of the more radical changes that the Government could have made to Individual Savings Accounts (ISAs) have been left out of the Autumn Statement, some useful adjustments have been made to the ISA rules from April 2024. From the next tax year, investors and savers will be able to open more than one ISA of each type in the same tax year. Under current legislation you can only open one ISA of each type (i.e. one Stocks and Shares ISA and one Cash ISA) in a tax year, and the new rules introduce interesting opportunities to split Stocks and Shares ISAs across different providers, or save into both a fixed rate and a variable rate Cash ISA with different deposit takers. It will also be possible to arrange partial ISA transfers from contributions made in the current tax year.
The total ISA allowance remains at £20,000 and this is the hard cap on contributions across all different ISA types in a single tax year. This is slightly disappointing, given the fact that the ISA allowance has remained at £20,000 since the 2017/18 tax year, and inflation has eroded the real value of the ISA allowance over time. Junior ISAs will continue to have a £9,000 limit per tax year.
The “triple lock” on State Pensions remains in place and therefore State Pensions will increase by 8.5% from next April, as this was the published rate of average earnings growth in September 2023. As a result, the full New State Pension will increase to £221.20 a week from April, or £11,541.90 per annum.
Those in receipt of State Pension will need to consider the effect of fiscal drag on other income they receive such as personal pension income, or savings or dividend income above the Personal Savings and Dividend Allowances. As the bands for Income Tax are frozen until 2028, the increase in State Pension may well push more income into the basic rate, and potentially higher rate, tax bands. It would, therefore, be sensible to consider using tax allowances where possible to shelter investment and savings income.
The Autumn Statement provided clarification on the pension rules that will apply from 6th April 2024, and also ended some of the uncertainty around the long term future of VCT and EIS investments. The measures announced may also present some useful opportunities in the way ISAs are structured from the next tax year; however, with tax bands still frozen, it would be sensible to review the tax-efficiency of existing investment portfolios. Speak to one of our advisers to discuss your financial planning requirements in light of the Autumn Statement.