It was not all bad news in the Autumn statement but there is no doubt that the Chancellor is fully aware of the need for both government and households to tighten their respective belts. Here we look at the key measures taken to increase tax revenue which will impact on tax planning for Intelligent Pensions’ clients.
State Pension – The Good and the Bad
As widely expected, the Government has committed to the State Pension’s ‘triple lock’, meaning that it will continue to increase in line with the highest earnings, inflation or 2.5%.
This will of course be extremely welcome to those of you who are already in receipt of your state pension, but it must also be remembered that this increase is locked in and will therefore result in a higher starting value for those who have yet to receive it.
The issue of when people will qualify for their State Pension was not addressed, however we know that a review of the State Pension age (SPa) is currently being carried out and the findings will be published early in 2023. We will of course keep you fully informed of any changes and will consider the impact on your individual retirement plan at your annual review meeting.
What if I don’t have a full state pension record?
Even although the start date may be delayed (legislation says it cannot be changed for someone within 10 years of retirement) it is still a valuable benefit and if you do not have a full National Insurance record (35 years is needed for full state pension) then you may want to top up your NI record. You can normally fill gaps within the previous 6 years but there is currently a ‘buy now while stocks last’ opportunity for for men born after 5 April 1951, and women born after 5 April 1953to go back up to 16 years. This opportunity will come to an end on 5 April 2023.
Details may be found here Voluntary National Insurance: Eligibility – GOV.UK (www.gov.uk)
If you are unsure of your contribution record, you can check hereCheck your National Insurance record – GOV.UK (www.gov.uk)
Taxation and Allowances
The personal allowance of £12,570 will be frozen until April 2028.
In England, Wales and Northern Ireland the basic and higher rate tax thresholds will remain at current rates, however the additional rate threshold will be reduced from £150,000 to £125,140. This means that someone earning £150,000 would pay an additional £1,243 per annum in tax, a tax increase of 2.3%.
The bands for Scotland will be announced later this year.
The dividend tax allowance will reduce from £2,000 to £1,000 from April 2023, and to £500 from 2024. For someone paying the highest rate of dividend taxation at 39.35% will pay an additional £590.25 in tax.
Capital Gains Tax
In arguably the most significant change for personal financial planning, the Capital Gains tax allowance of £12,300 will be more than halved to £6,000 from April 2023, and halved again in April 2024 to £3,000.
Many clients use the current £12,300 allowance to realise gains made on non-ISA investments and re-invest the proceeds in a more tax efficient vehicle – commonly known as a ‘bed and ISA’ or ‘bed and pension’.
The reduced allowance will severely restrict the scope for this exercise in future, and we strongly urge you to consider making use of the current allowance before the tax year end.
No change has been made to Inheritance Tax. The nil rate band will remain at £325,000 and the residence nil rate band will remain at £175,000 until April 2028.
The lifetime allowance remains frozen at £1,073,100 until 2025/26.
If you would like more information about any of these changes, or you need to speak to an adviser ahead of your annual review, please do not hesitate to contact us.
Further information may also be found here Autumn Statement 2022 HTML – GOV.UK (www.gov.uk)