Chancellor Jeremy Hunt has delivered the Autumn Statement Budget, setting out the spending and taxation plans for the UK Government. There are tens of billions in tax rises, and spending cuts announced, but what does this mean for you and in what ways can you do more with your money?
The key changes explained.
There are some significant changes to many taxes, and this means careful financial planning is as important as ever.
- The Inheritance Tax nil-rate band of £325,000, and the residence nil-rate bank of £175,000 will be frozen until April 2028.
- Higher earners will start paying the top rate of tax (45%) at £125,140, which has been lowered from £150,000.
- The dividend allowance has also been reduced to £1,000 from April 2023, with a further reduction again to £500 from April 2024.
- The Capital Gains Tax allowance will be reduced to £6,000 from April 2023 and £3,000 from April 2024.
- Corporation Tax is increasing to 25% for companies with profits over £250,000.
Utilisation of tax allowances and good financial advice will be more important than ever for dealing with these changes, and use of ISAs and Pensions can be an effective way to mitigate the impact of many changes.
What does this mean for you?
When it comes to investing, you have set a long-term goal, and should stay disciplined towards your financial plan. Don’t be distracted by short-term noise, as the media inevitably try to make headlines out of political stories such as the budget. The reality is that you’ll likely be invested for many years, and what happens with political changes or government budgets is a short-term moment in a long-term picture.
There are some things to think about relating to the budget, and these will largely be relating to your own personal circumstances. For example, if you hold investments in a General Investment Account, how can you mitigate the impact of the reduced Capital Gains Tax and dividend allowances? Could a pension contribution reduce the level of income tax you pay? How can your estate be structured to minimise the impact of Inheritance Tax?
For business owners, consideration around tax planning to mitigate the potential increase in Corporation Tax could be very important.
What these changes highlight is the benefit of good tax planning.
Your Pension contributions attract Income Tax relief and also extend your Income Tax bands, resulting in more of higher and additional rate tax payers income being taxed at a lower rate. There’s also the benefit that funds held within a Pension are not included in your estate, which could be useful for those investors concerned with the freezing of the Inheritance Tax threshold.
In addition to your Pension, now is a good time to think about how you utilise your Stocks & Shares ISA. Both the ISA and Pension tax-free allowances are more important than ever – both offer shelter from Capital Gains and Dividend Tax. You can invest up to £20,000 tax-free in an ISA in the 2022/23 tax year, and for most people, up to £40,000 tax free in your Pension in the 2022/23 tax year. Moving funds from a General Investment Account into an ISA and/or a Pension could therefore be very beneficial.
What to do next.
Speak to your financial adviser about how you can protect your money from tax rises and allowance reductions.
You may be able to mitigate the impact of the Capital Gains allowance reduction by selling down investments outside of a tax shelter and reinvesting into an ISA and Pension. It’s important you speak to your financial adviser before considering this as selling from a GIA can cause a tax bill itself.
Consider increasing your pension contributions to maximise tax relief.
For higher earners, consider Carry Forward for pension contributions, where can you invest any unused pension allowance from the last three tax years.
If you have any concerns around the budget and how it may affect you, speak with a financial adviser.
Download your FREE ISA & Pension Guides
We have created two easy-read guides which explore everything you need to know about Pensions and ISAs, so you can understand all of the different financial tools that are here to help you reach your financial goals. Choosing the right tool for you is very personal, and these FREE guides are here to assist you take control over your finances and do more with your money.Download Here