Autumn Budget 2023

No Big Surprises but a 2% National Insurance Reduction Gift

We’ve summarised the key points relating to pensions and investments announced by the Chancellor in the Autumn Statement on 22 November 2023.

National Insurance

Employees

The main rate (Class 1) will be cut by 2%. The new rate of 10% will apply to earnings between the primary earnings threshold and the upper earnings limit, giving a maximum saving of £754 pa (£37,700 x 2%).

This measure will start from 6 January 2024.

There are no changes to the actual thresholds, and these will remain at 2023/24 levels.

Self-employed

Class 2 NI will be abolished from April for those with annual profits exceeding £6,725. The current weekly rate is £3.45. Individuals will still get access to contributory benefits, including the State Pension.

Those with earnings below £6,725 must pay voluntary Class 2 contributions if they wish to retain access to the State Pension and other benefits, although there could be further changes to this next year. The rate for those who wish to do so will be frozen at £3.45 per week.

Self-employed also pay Class 4 NI contributions on profits between the lower and upper profits limit (up to £37,700). From April, the rate will fall by 1% to 8%, representing annual savings of up to £377. The rate applicable to profits above the upper profits limit will remain at 2%.

There will be no change to the actual limits and thresholds for Class 2 or Class 4 next year.

Employer

There were no changes to employer rates of NI which will remain at 13.8%.

State Pension

It was confirmed that the triple lock on State Pensions would be maintained, guaranteeing the 8.5% earnings-based increase for next April. The increase will also apply to Pension Credit.

This means that the full New State Pension will increase to £221.20 a week from April.

Capital gains Tax

As announced last year, the CGT annual exemption will be cut from £6,000 to £3,000 from April 2024. Rates will remain at 10% for gains falling in the basic rate band, and 20% for everything over (18% and 28% respectively for gains on residential property).

Abolition of the Pension Lifetime Allowance

Alongside the Treasury documents, HMRC published some further details on the new pensions regime for 2024/25, where the lifetime allowance (LTA) will be completely abolished, and two new allowances come into play – the lump sum allowance and the lump sum & death benefit allowance.

From 6 April 2024, authorised lump sums and lump sum death benefits will be tested against a new Lump Sum and Death Benefit Allowance set at £1,073,100 (or higher where a valid LTA protection is held). Individuals will not pay tax on lump sums taken if the cumulative value does not exceed this threshold. Any lump sum in excess of this new allowance will be taxed at the recipient’s marginal rate of tax.

The maximum tax-free PCLS or tax-free element of an UFPLS will be subject to a new Lump Sum Allowance set at £268,275 (or higher where a valid LTA protection is held or a scheme-specific lump sum entitlement applies). Any PCLS or UFPLS will also count towards the overall tax-free limit of £1,073,100.

The policy paper confirms that the tax-free element of trivial commutation lump sums, winding-up lump sums and small lump sums will not be deducted from the new thresholds – although the individual must have some available threshold to be able to take any of these lump sums.

The policy paper also introduces a new payment type – the Pension Commencement Excess Lump Sum (PCELS) which is taxed at the individual’s marginal rate. This means that when taking a lump sum from a pension arrangement, some of it could be a tax-free PCLS and the rest could be made up of a PCELS i.e. taxable.

HRMC U-turn on pension death tax plans

The government has confirmed the lifetime allowance will be scrapped from pension rules from April next year, as previously announced by the Chancellor.

Crucially, this year the lifetime allowance remained in place but with no charges applied, meaning a future government could re-introduce the lifetime pension cap relatively easily.

Passing legislation to abolish the lifetime allowance altogether makes it far more difficult for policymakers to reverse the rules again, as Labour has pledged it would if elected.

Alongside this came welcome news on the treatment of pensions on death.

Under current rules, if you die before age 75 your beneficiaries can inherit your defined contribution (DC) pension completely tax-free if it is under your lifetime allowance. HMRC has announced that, contrary to previous plans, this situation will continue.

This is good news for pension savers. Creating a new stealth tax, as had previously been indicated in proposals put forward over the summer, would have been a massive shift in policy hitting hard the beneficiaries of pension savers who die under age 75.

Individuals receiving lump sum death benefits.

Where a member dies under the age of 75 and a lump sum death benefit is paid to:

• Qualifying persons, it’ll count towards the deceased member’s Lump Sum and Death Benefit Allowance and any excess will be taxed at the beneficiary’s marginal rate of tax, or

• Non-qualifying persons, it’ll count towards the deceased member’s Lump Sum and Death Benefit Allowance and any excess will be taxed at basic rate. But if the payment is made outwith the two-year period where currently a special lump sum death benefit charge would apply, this charge will continue to apply.

Pension pot for life consultation launched

A call for evidence will be launched on a lifetime provider model which would allow individuals to choose which pension scheme contributions are paid to, rather than the scheme chosen by their employer – to reduce the number of small pots created when employees change jobs and a move towards having one pension pot for life.

Following a recent consultation, the Government’s response confirms it will introduce a multiple default consolidator model to enable a small number of authorised schemes to act as a consolidator for eligible pension pots under £1,000.

ISA changes

There were no changes to the ISA subscription limits which will remain at £20,000 for adult ISAs and £9,000 for Junior ISAs.

The Chancellor did announce the ‘one ISA of each type per tax year’ restriction will be removed from April 2024. This simplification will mean investors will be able to subscribe to multiple cash or stocks and shares ISAs in a year without fear of invalidating their subscriptions leading to a loss of tax free status on their savings.

From April 2024 it will also be possible to do partial transfers of ISA funds. Currently there are separate rules for the transfer of current and previous years subscriptions. While it is possible to do a partial transfer of previous years subscriptions, transfers of current years subscriptions must be for the whole amount including the attributable investment growth. This will be relaxed from April allowing partial transfers to apply to all ISA subscriptions whenever they were made.

The age at which an adult ISA can be opened will fixed at 18 across all ISA types from April. This will mean it will no longer be possible to open an adult Cash ISA at age 16, removing the ability for 16 and 17 year olds to pay £29,000 into ISAs by combining contributions into both a Cash ISA and Junior ISA.