Industry News – County Financial Limited

FINANCIAL INDUSTRY NEWS

Spring Budget Summary:

The Chancellor of the Exchequer, Jeremy Hunt, delivered his Budget on the 15th March, to a mixed reception.

Key takeaways were that the outlook for the UK economy is more positive than previously anticipated, with no expectation now of a technical recession in 2023 and a significant reduction in anticipated inflation, which will be welcome news to many UK households.

One of Mr Hunt’s stated objectives for his Budget and policy changes were to bring more people back into the workforce. Proponents of the Budget praised initiatives and tax cuts which they claim will bolster the UK workforce and thereby increase tax revenue, whilst critics generally decried the Budget’s lack of creativity, spirit and dynamism, through not fundamentally addressing issues facing the UK economy, such as lack of growth, investment in public services and bringing the national debt under control.

There were some notable tax changes affecting personal taxation which we’ve attempted to summarise below:

Enhanced childcare support and energy costs support

The Chancellor announced an expansion of the 30 hours per week free childcare regime to make this available to parents of children aged 9 months to 5 years.
Extended energy costs support will be provided with the announcement that the Energy Price Guarantee will be extended for a further 3 months, i.e. until June 2023.

Income Tax and National Insurance changes

Income tax and National Insurance bands continue to be frozen until 5th April 2028, but the previously announced change to the threshold for the highest rate of income tax, i.e. the 45% Additional Rate, will reduce from £150,000 to £125,140 with effect from 6th April 2023.

Capital Gains Tax and Dividend Taxation Changes

As was previously announced, the Dividend Income tax free allowance will reduce from £2,000 to £1,000 per tax year from 6th April.
Also previously announced was the reduction in the tax free Capital Gains Allowance from £12,300 per individual to £6,000 per individual from 6th April 2023, with a further reduction from 6th April 2024 to £3,000.

State Pension

The State Pension will increase in line with inflation from 6th April 2023, as previously announced.

Pension changes

The pension savings Annual Allowance will increase significantly from £40,000 per tax year to £60,000 from next tax year, allowing tax relief opportunity.
Those with earnings between £240,000 and £360,000 will benefit from less punitive rules relating to the tapered loss of their yearly pension contribution allowance, allowing them to contribute more to their pensions and thereby achieve tax relief that they would otherwise have been unable to claim.
Another dramatic change to pension rules was the scrapping of the Lifetime Allowance, which is the cap on the level of pension savings an individual can accrue through their lifetime. The current cap on pension lifetime savings for the majority of individuals is currently set at £1,073,100 and savings above this level would currently incur a Lifetime Allowance Charge, but this will no longer apply after 6 April 2023.
Tax free cash available from pension pots will still be capped in line with 25% of the £1,073,100 Lifetime Allowance level or in line with other protected limits available previously.

These measures provide far more capacity for high earners to accrue additional pension savings and tax relief than would previously have applied.

A word of caution though, as Labour has predictably pledged to reverse the measure to scrap the Lifetime Allowance, which they understandably argue disproportionately benefits the highest earners and the wealthiest in society.

Other changes

Inheritance tax rate “nil rate bands” (the amount that, following death, can be passed on free from 40% inheritance taxation) will continue to be frozen until April 2028, in line with previous announcements.
Corporation Tax for companies with profits over £250,000 will increase from 19% to 25% from April 2023. Companies with profits under £50,000 will still have a 19% Corporation Tax rate and a sliding scale of Corporation Tax, starting at 19% and going up to 25%, will apply to companies with profits between £50,000 - £250,000.

We will as always review any changes affecting your personal planning as part of our annual review process, but please don’t hesitate to get in contact if you have any questions relating to the Budget changes.

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Autumn Budget:
A tightrope over a rock and a hard place

Stability
Growth
Public services…

These were the watchwords in Jeremy Hunt’s Autumn Budget presentation in the House of Commons last week, where it was also confirmed that the UK economy is now firmly in a recession.

With the backdrop of 11% inflation in the 12 months to October, also coupled with interest rate rises, this has meant a real squeeze on household finances. For this reason, the Chancellor would have been acutely aware of the gravity of striking the right tone with his Budget, while at the same time needing to persuade global markets that the UK wishes to prioritise fiscal responsibility, as this has a direct bearing on the interest the UK government will need to pay on its substantial debt.

Mr Hunt aimed to achieve the above balance with a combination of increased tax and decreased spending. We’ve tried to summarise below the most pertinent changes affecting household budgets:

Budget Winners

Mr Hunt was at pains to emphasise his support for more vulnerable demographics, evidenced by the below announcements:

A significant increase in means tested benefits, State Pensions and public sector employees’ pay in line with inflation;
An unprecedented increase in the National Living Wage for those over the age of 23 (£9.50 per hour brought up to £10.42 per hour).
The Government will be extending support of contributions toward energy bills beyond April 2023, but the contributions will be less generous than currently, prioritising the most vulnerable households.

Budget Losers

In what almost amounted to a complete U-turn from the previous Truss/Kwarteng Conservative Government, the Chancellor chose to increase, rather than alleviate, the tax burden on most UK households.

Freezing of tax and National Insurance bands to persist until 2028.

Historically, tax payers would have benefited from their tax free allowance (known as the Personal Allowance) and general tax bands gradually increasing broadly in line with wage inflation over time, which would have the effect of an individual’s tax-to-income ratio remaining broadly static over time. However, the protracted freezing of the level of tax free Personal Allowance and the levels at which different tax rates are paid, means that an ever increasing proportion of most household incomes will be taxed year on year until 2028.

The threshold at which Inheritance Tax is paid will also continue to be frozen, a move which will similarly continue to impair the amount of wealth that can be passed on tax free between generations.
Cuts to the Dividend and Capital Gains Savings Allowances, meaning a higher proportion of returns on savings will now be taxable:

The tax free Dividend Savings Allowance will now be decreased from £2,000 per tax year to £1,000 per tax year
the tax free Capital Gains Allowance will also be dramatically reduced from next year, down from the current £12,300 per tax year to £6,000 per tax year.

Further cuts to the above allowances will take effect in 2024.

The threshold for the 45% tax band rate for high earners will be reduced from £150,000 to £125,000. The Truss/Kwarteng administration had previously announced a full abolition of this tax rate and so, to some degree, this encapsulates the massive sea-change in taxation and spending policy by the Sunak/Hunt administration.

Similar tax tightening measures for business owners were also announced.

Summary

In our view, the significant shift in tax policy demonstrates the importance of sound ongoing financial planning, to ensure you can continue to meet your short, medium and long term life objectives. We will continue to welcome the opportunity to work with you to navigate the challenges that tax changes can bring, whilst ensuring that you still can make the most of living life to the full.

If you would like to print this article or download it to
your computer as a PDF please click on the image here.