The Chancellor Jeremy Hunt has today delivered his Autumn Statement.
National Insurance
Despite leaks and rumours in the press over recent days and weeks, the Chancellor decided not to reduce Inheritance Tax (IHT). Instead, given tax revenues were higher than expected, lower debt and lower inflation, the decision has been taken to reduce the personal tax burden for employees by cutting National Insurance by 2%, down from 12% to 10%. He said the change will help 27 million people and mean someone on the average salary of £35,000 p/a will save over £450 a year. It was also announced he was introducing urgent legislation to bring this cut forward from April 2024 to be effective from 6 January 2024.
For those who are self-employed, he also announced the abolition of Class 2 National Insurance and a reduction of Class 4 National Insurance from 9% to 8%.
State Pension
In good news for those in receipt of the State Pension, the government will honour the triple-lock and increase the full state pension by 8.5%. This increase will result in a rise in the full State Pension of over £17 per week, from £203.85 to £221.20.
The government is freezing the Individual Savings Account (£20,000), Junior Individual Savings Account (£9,000), Lifetime Individual Savings Account (£4,000 excluding government bonus) and Child Trust Fund (£9,000) limits at their current levels for 2024/25.
Pension Lifetime Allowance
It was also confirmed the government will legislate in the Autumn Finance Bill 2023 to remove the Lifetime Allowance, as announced in the last Budget. The measure will clarify the taxation of lump sums and lump sum death benefits, and the application of protections, as well as the tax treatment for overseas pensions, transitional arrangements, and reporting requirements. This will take effect from 6 April 2024.
Personal Allowances and Tax Thresholds
No announcements were made in respect of Personal Tax Allowances and thresholds which will remain frozen at their current levels until April 2028. As planned, the tax-free dividend allowance will reduce from £1,000 (2023/24) to £500 and the Capital Gains exemption from £6,000 (2023/24) to £3,000 from April 2024.
The government will uprate the Blind Person’s Allowance (BPA) and the Married Couple’s Allowance (MCA) by the September Consumer Price Index (CPI) figure of 6.7% in 2024/25. The BPA will be valued at £3,070 and the MCA will be valued at between £4,280 and £11,080. This decision represents no policy change as it confirms the default position for these allowances to be uprated by CPI, as set out in the Income Tax Act 2007.
Pension simplification
The Chancellor also announced plans to consult on a pension ‘pot for life’ designed to reduce the number of legacy workplace small pots within the UK pensions market. The ‘pot for life’ will give employees the right to choose the scheme into which their employer pays pension contributions.
The Department for Work and Pensions (DWP) has previously consulted on how to reduce the number of deferred small pots in the UK pension market, saying it was leaning towards a ‘default consolidator’ approach for schemes with less than £1,000 in assets. However, the ‘pot for life’ is different to the consolidator model as it means employees could have more choice over which scheme is used for their auto-enrolment pension contributions.
As mentioned, this is under consultation, so no final decisions have been made on this matter.