The Chancellor will deliver his Autumn Statement on 22 November and may announce changes that could affect your finances.
There are several tax allowances and thresholds that we know are fixed for the next few years.
However, we do think there could be some tinkering from the Chancellor in some areas, notably around ISAs and pensions.
Stamp Duty Land Tax thresholds frozen until March 2025.
The annual capital gains tax (CGT) allowance will reduce from £6,000 to £3,000 in April 2024.
The pensions Lifetime Allowance scrapped from April 2024 and tax-free cash lump sum capped at £268,275.
Dividend allowance halved from £1,000 to £500 from April 2024.
Income tax rates, National Insurance Contributions and the personal allowance frozen until 2028.
Inheritance tax (IHT) thresholds frozen until April 2028.
What might change
An overhaul of ISAs is rumoured, which would aim to simplify what has become an increasingly complex regime. There are now six ISA types, and each come with their own rules, restrictions and tax treatments.
ISA sales figures show that a large proportion of savers’ money still goes to Cash ISAs even though investing gives the potential for better returns over the long run.
The balance has shifted a lot in the last couple of years, however, with £37bn going into Cash ISAs versus £34bn going into Stocks & Shares ISAs in 2020/21. In 2018/19, £44bn went into Cash ISAs versus just half that amount into Stocks & Shares, even though interest rates on cash savings were at rock bottom during this time.
Combining the Cash and Stock & Shares ISA into a single product could encourage higher levels of investing.
The Innovative Finance ISA is not well understood and takeup has been poor, while the peer-to-peer lending investments it offers are relatively high risk, so the Chancellor may decide to scrap this ISA.
The ISA allowance of £20,000 has not changed for some years now, the Chancellor may decide to increase it or split the Lifetime ISA limit of £4,000 a year out from the total, so those eligible can save up to £24,000 tax free each year.
Taxing fractional shares within ISAs
HMRC recently clarified its view that fractional shares do not qualify to be held tax-free in ISAs and could change the rules to reflect this. Fractional shares are small slices of full shares.
Making them subject to capital gains tax could be complex to implement, penalise small-scale investors, and undermine trust in the ISA wrapper.
Scrapping Lifetime ISA exit penalty
There have also been calls to remove the exit penalty for unauthorised Lifetime ISA withdrawals.
Currently, withdrawals below the age of 60 or for any other reason than to buy a first home are subject to a 25% penalty which is applied to the total pot, so savers lose the government bonus and some of their own capital.
Critics argue that this is an unfair penalty during the cost of living crisis when people may need to fall back on any savings they have.
Inheritance tax changes
The Chancellor may be considering cutting one of the nation’s most hated taxes, inheritance tax. The overall IHT tax-free limit will remain at £1m until 2028 under the current rules (note that there are a lot of qualifying rules to get to £1m), but Jeremy Hunt may reduce the tax rate or even abolish it altogether.
This would be a blow to the public purse. IHT receipts reached £3.9 billion between April and September, according to the latest HMRC figures, putting them on track for a record-breaking year.
For people concerned about reducing the IHT liability of their estate, our financial planners often recommend pensions as a tax-efficient way to pass on wealth, as pensions are not counted as part of your estate and can usually be passed on to beneficiaries tax-free after you die.
We certainly hope the Chancellor will not change the rules to make pensions subject to IHT, because pensions are an important way of passing on wealth to the next generation.
Maximising your personal gift allowances can also reduce the IHT cost to your beneficiaries, although of course it’s possible that there will be changes made to these allowances.
Pension triple lock
The triple lock is a pledge that the state pension will increase each April in line with either CPI inflation, wage inflation, or 2.5%, whichever is greater. It is due to rise 8.5% from April next year, reflecting above-average earnings growth.
Our financial planners think that, although the triple lock is controversial because it is generous, the government can’t abolish it so close to an election in which it needs to appeal to older voters.
The Chancellor might decide to raise it in line with regular wages, excluding bonuses, which would mean a more moderate increase to 7.8%. in this case, the basic state pension would go up around £837 rather than the £902 expected.
We expect there to be rather a lot of noise made around inflation during this Autumn Statement and the Chancellor positioning this as a large tax cut.
Halving inflation from around 10% to around 5% by December is a key economic policy priority, which the Bank of England and the government expect to achieve, but only just.
Energy deflation and food disinflation will likely help them hit the target. Underlying inflation still remains quite strong, but unfortunately so is the prospect of an economic slowdown which would solve the problem.
On the wider economy, the Chancellor’s room for manoeuvre is limited. There have been big revisions to the size of the economy from the Office for National Statistics, which we might expect to allow room for more spending, but the Office for Budget Responsibility probably won’t take this stance.
The Chancellor may want to capitalise on the money saved by scrapping part of the HS2 rail line.
Britain’s longer-term issue remains lacklustre investment. This is one reason we at atomos prefer to invest in a globally diversified way, without a bias to our home market.
It feels unlikely that we will get meaningful announcements on this so close to an election, but it is possible. Overall we expect to see more ‘giveaways’ in the Spring Budget because it is closer to election time.
On our wish list
We would like to see ISAs made less complex. They are a useful financial planning tool but haven’t been subject to a broad-brush overhaul since they were introduced.
The Chancellor might consider creating a single ISA which can be used for cash savings or investing.
Cut inheritance tax
We would applaud a reduction in the 40% rate of inheritance tax or a simplification by abolishing the £175,000 residence nil rate band and increasing the nil rate band to £500,000 per person.
This would allow married couples or civil partners to more easily pass on an estate worth up to £1m IHT-free.
Alternatively, the Chancellor could reduce IHT from 40% to 36% for everyone - currently you may qualify to pay IHT at 36% if you donate 10% of your net estate to charity.
We want everyone to be able to pass on their wealth to younger generations more effectively.
Estate planning is an important way to mitigate the impact of IHT, but the complexity of the current IHT system unfairly penalises those who don’t have professional financial planning in place.
Your financial planner or portfolio manager will be paying careful attention to any announcements from the Autumn Statement which could affect your finances.
If you’d like to talk to us about any of these issues or anything else, get in touch with your atomos contact, call us on 03301 656 600 or email firstname.lastname@example.org
The information and opinion contained in this article should not be treated as a forecast, research or advice to buy or sell any particular investment or to adopt any investment strategy. Any views expressed are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness by atomos. Any expressions of opinion are subject to change without notice. Past performance is not a reliable indicator of future results. Investing involves risk and the value of investments, and the income from them, may fall as well as rise and is not guaranteed. Investors may not get back the original amount invested.