Future-proof financial planning in wake of Jeremy Hunt's Autumn Statement - Paul Andrew

At Brown Shipley, we’ve evaluated what the changes in fiscal policy mean for your personal wealth and savings.

Technically, Chancellor Hunt has adhered to the Conservative’s manifesto commitment to not raise headline tax rates. However, the tax we pay has increased because of fiscal drag – a stealthy way of raising tax receipts. Freezing income tax bands and other allowances brings more individuals into the tax ‘net’ and, as wages increase, more of the money people earn will be taxed. The personal income tax allowance will remain frozen at £12,570 for more than five years until April 6 2028, along with the threshold at which people start paying the 40 per cent higher income tax rate of £50,270.

There was also a major U-turn from ex-Chancellor Kwarteng’s drastic culling of the top rate of income tax. Chancellor Hunt’s statement imposes a top rate of income tax (45%) of £125,140 from April 2023 – down from the current £150,000. According to HMRC, from 2023 to 2024 the reduction of the additional rate tax bracket will impact around 232,000 people who will pay the additional rate of tax, who would not otherwise have done so had the threshold remained at £150,000.

There has been no change to Capital Gains Tax rates, but the annual exempt amount will reduce from £12,300 to £6,000 from 6 April 2023 and to £3,000 from 6 April 2024. According to HMRC, reducing the annual exempt threshold will, for the year 2023-2024, impact around half a million individuals and trusts. It’s estimated that by 2024-2025, approximately 260,000 individuals and trusts will be brought into the scope of the CGT for the first time.

Taxpayers earning more than £100,000 will have a 60 per cent effective tax rate, followed by 45 per cent for income over £125,140. Individuals in this tax bracket may wish to consider higher pension contributions, especially given Chancellor Hunt’s decision not to make any changes to the pension reliefs. According to HMRC, for those with income between £125,140 and £150,000, the average cash loss is £621 in 2023 to 2024. For those with income above £150,000 the average cash loss is £1,256 in 2023 to 2024.

However, there are limits on what an individual can pay into a pension. Tax relief is available at the highest rate of Income Tax you pay. Keep in mind that you cannot access your pension savings until you reach pension age, which is currently 55, rising to 57 in 2028.

With the reduction of the Capital Gains Tax Annual Exemption from April 2023, individuals may consider gains in their portfolio and how best to manage these before the end of the tax year. Spouses and civil partners both have exemptions that can be used, and assets can be transferred between spouses and civil partners without incurring Capital Gains Tax.

Make use of tax-efficient investments like ISAs.

You may wish to think carefully about succession planning and mitigating Inheritance Tax by gifting early where possible or making inheritance tax efficient investments.

Paul Andrew is a Wealth Planner for Brown Shipley