Yesterday, Chancellor Jeremy Hunt unveiled his Autumn Statement.
The main points were:
· A reduction in National Insurance - the main rate is to be cut from 12% to 10% from January,
· The ‘full expensing scheme’ for businesses is to be made permanent,
· The State Pension triple lock has been ‘honoured in full’ – this will rise by 8.5% next April, and
· The National Living Wage (aka. minimum wage)will be increased to £11.44 per hour, and will also apply to 21 and 22year-olds (it previously kicked-in at 23).
These are rightly the focus of today’s media, but here are three things you may have missed:
1. More flexible ISAs
From April 2024, you’ll be able to pay into multiple types of the same ISA in one tax year; you won’t have to reapply for an existing ‘dormant’ ISA each year; and you can partially transfer some of a current year’s subscription to a new ISA.
These are all small positives, tidying up some of the admin around ISA contributions. However, the Chancellor fell short of more overarching ISA simplification (more on this later).
2. Pensions: one pot for life
The chancellor has written to the FCA and Pensions Regulator to set out the government’s vision for the pensions market in 2030.
As part of this, the Chancellor announced the exploration of a lifetime provider model, which would enable individuals to have one pot for life – a single pension that would move with them and any new employers would be required to ‘plug in’ to that pension under auto enrolment rules.
This would be great news. I’ll be writing about it more in an upcoming blog but the key benefit is that it would likely alleviate the ‘lost pensions’ dilemma (according to research from the Pensions Policy Institute last year, there were around 2.8m lost pensions worth around £26bn). It would also drive better outcomes as people will have greater transparency over their pension savings and will therefore likely pay closer attention to how much they’re contributing, how the monies are invested, etc.
There will be logistical challenges to implementing this, so wouldn’t expect it anytime soon. But it’s a step in the right direction for sure.
3. Pension death benefits
HMRC has ditched plans to tax inherited pensions when someone dies pre-75.
This is a bit technical but…
In previous draft legislation, HMRC announced that if you inherit uncrystallised (i.e. untouched) pension savings from someone who died before the age of 75, and you choose to access these monies via drawdown or annuity purchase, they would be liable to income tax at your marginal rate.
This is in contrast to current rules, whereby the income can be taken tax-free.
The reversion to the old rules is a positive and reaffirms the extremely generous death benefits on defined contribution pensions. However, there are still ‘gaps’ in the proposed new legislation for next year, particularly around the new Lump Sum Allowance (LSA) and Lump Sum and Death Benefit Allowance (LSDBA), and how these will apply to inherited pensions, whether taken as a lump-sum or income.
Once the rules are finalised, I’ll be publishing a more detailed overview with worked examples.
What he didn’t do
Given all the media speculation ahead of the event, it’s also interesting to take stock on what the Chancellor didn’t do:
INHERITANCE TAXRULES UNCHANGED
There was a lot of speculation that the Chancellor was going to reduce the rate of inheritance tax, or even ditch it entirely.
He didn’t. It felt like this one was leaked to gauge public perception and public perception was not good.
NO BRITISH ISA (THANK GOODNESS)
This was keeping me up at night (my teething one year-old also had a role to play) – the idea that there might be a separate or additional ISA allowance for investing in British stocks over international ones.
I’m vehemently against the idea of this for several reasons:
· For one, most of the main UK ‘blue chip’ stocks listed in the FTSE are international businesses, some with only a modest presence in the UK,
· Secondly, the vast majority of ISA transactions would be done in the secondary market – i.e. you’re buying shares from another seller, not funding the underlying company directly. So I’m not show how this would actually have any economic benefit other than perhaps pumping up the UK stockmarket for a period,
· But most significantly, this would be ‘papering over the cracks’ in my view. The government should be looking to boost productivity, reduce red tape around UK listing, and generally improving the appeal of the UK for foreign investment. Then people will naturally invest more in UK equities because the prospects are better.
Still the £100k cliff-edge for childcare costs
It was disappointing that the government did nothing to remove the ‘cliff edge’ income hit once a parent’s earnings surpasses £100k.
The marginal tax charge once a parent of young children’s income surpasses £100k is horrendous. You incur an effective 60% income tax on the next £25,140 tranche of income – the 40% higher rate plus an additional 20%due to the tapering of your tax-free Personal Allowance.
But you also lose access to tax-free childcare (worth up to£2,000 per child per year) and up to 15 free childcare hours per week for 3-4year olds (worth c. £3,000 per child per year based on average nursery costs). And the latter is due to be widened to cover children from 9 months to 4 years, bringing more people into this ‘trap’.
I’ll be writing about this more in an upcoming blog (and how to mitigate it), but where a parent of say a 1- and 3-year old receives a modest pay rise that takes them above the £100k threshold, this would likely actually cost them money.
There were no changes to this in the Autumn Statement.
NO ISASIMPLIFICATION
There were also calls on the government to simplify the current ISA regime, which currently consists of 6 different types of ISA:
· Cash ISA
· Stocks & shares ISA
· Junior ISA
· Lifetime ISA
· Innovative Finance ISA
· Help-to-Buy ISA (albeit, you can no longer open one of these).
AJ Bell is spearheading a campaign to simplify this into just one ISA that can hold both cash and stocks & shares.
The mechanics around Lifetime ISAs and the accompanying government bonuses are a bit trickier, but one option here would be to award holders a bonus at the point of property purchase (or retirement), according to past subscriptions. This would work in a similar fashion to State Pension entitlement and National Insurance contributions for example (e.g. you contributed the maximum amount in ten years – here’s £10k to put towards property purchase). .
Let me know if there’s anything I’ve missed – this was along statement with some devilish detail.
