Today, Jeremey Hunt, the Chancellor of the Exchequer (the UK’s Finance Minister), unveiled in the Houses of Parliament his “Autumn Statement for Growth”.
Whilst not a “Budget”, the Autumn Statement allows a Chancellor to set out a range of Tax and regulatory measures.
It is worth noting that there is both a political backdrop to the Autumn Statement, being the impending general election, likely to be held in Autumn 2024, and an economic backdrop, being low economic growth, impaired by the twin effects of the COVID pandemic and the energy and food inflationary shocks arising from Russia’s invasion of Ukraine.
The Autumn Statement included a series of personal tax and business measures including, but not limited to, the following:-
Personal taxes
- The Income tax Personal Allowance will remain unchanged at £12,570 until April 2028.
- The basic rate of Income tax will remain at 20% for basic rate tax payers.
- The higher rate threshold of £37,701 will remain unchanged.
- The additional rate threshold will also remain at £125,140 (this was reduced from £150,000 on the 6 April 2023).
- The Dividend Allowance remains at £1,000 (this allowance was cut from £2,000 on the 6 April 2023, and further reduction will take place on 6 April to £500).
- The starting rate for savings will be frozen at £5,000, enabling individuals with less than £17,570 in employment income to receive up to £5,000 of savings income free of tax.
- Annual subscription limits for Junior Individual Savings Accounts (ISA) and Child Trust Fund accounts will remain at £9,000 and the annual subscription limit for adult ISAs will remain at £20,000. However multiple subscriptions to ISAs of the sane type every year and partial transfers of ISA funds between providers will be allowed from April 2025.
- The Government will uprate the Blind Person Allowance and the Married Couple’s Allowance in line with the September consumer price index ("CPI") of 6.7% in the 2024/25 tax year. This will result in the Blind Person Allowance being valued at £3,070 and the Married Couple’s Allowance being valued between £4,280 and £11,080.
- In addition to the above an increase will be seen of 6.7% in working age benefits including Universal Credits which will see households gaining £ 470 on average in 2024-25.
Charitable Gift Aid
- As mentioned in the 2023 Spring Budget, from April 2023 gift aid donations will only attract relief if they are made to UK charities and Community Amateur Sports Clubs. Charities that HMRC would usually accept which are situated in the European Union (EU) and European Economic Area (EEA) will have a transitional period until April 2024.
Capital Gains Tax
- The rates payable on Capital Gains Tax (CGT) remain at 10% for basic rate tax payers (18% on residential property gains and carried interest) and 20% for higher rate tax payers (28% on residential property gains and carried interest).
- The CGT Annual Exempt amount was significantly reduced from £12,300 to £6,000 from April 2023 and a further reductions will take place from April 2024 to £3,000 from April 2024.
- As previously announced the Government is introducing changes to the Self-Assessment tax return forms requiring amounts in respect of crypto assets to be reported separately. The changes will be introduced from 6 April 2024.
Pensions
- The Pension Annual Allowance will remain unchanged at £60,000.
Currently if you earn in excess of £260,000 your Pension Annual Allowance is reduced by £1 for every £2 over £260,000 and capped at £10,000.
- In the 2023 Spring Statement the Government confirmed of their plans to abolish the Lifetime Allowance charge and there will no longer be a limit on the amount you can invest into your pension over your lifetime.
- The Government are currently discussing the issues surrounding ‘small pot’ pensions and it is being proposed that individuals can have their employment pension contributions paid into their own existing personal pension, resulting in one overall pension being in existence.
- It has been announces that the basic State Pension, new State Pension and Pension Credit standard minimum guarantee, the “Triple Lock”, will be uprated in April 2024 in line with average earnings growth of 8.5%.
Car and Van Benefits
- The benefit rate for Electric and ultra-low emission cars emitting less than 75g of CO2 per kilometre will increase by 1% in 2025-26, a further 1% in 2026-27 and a further 1% in 2027-28 up to a maximum appropriate percentage of 5% for electric cars and 21% for ultra-low emission cars.
- Rates for all other vehicles bands will be increased by 1% point for 2025-26 up to a maximum appropriate percentage of 37% and will then be fixed in 2026-27 and 2027-28.
- From 6 April 2023, Car and Van Fuel Benefit Charges and van benefit charges increased in line with CPI and these will remain at these levels for 2024-25.
National Insurance
- From 6 January 2024 the Government will cut the main rate of Employee Class 1 National Insurance Contributions (NIC) from 12% to 10%.
- For self-employed individuals and Partners receiving partnership profits, the main rate of Class 4 NIC will be reduced from 9% to 8% from 6 April 2024.
- In addition to the above from 6 April 2024, Class 2 NIC will be completely abolished.
The Government have extended the employers NIC relief for veterans for a further one year until April 2024.
Inheritance Tax
- The inheritance tax nil-rate will remain unchanged at £325,000 until April 2028.
- The residence nil-rate band will continue at £175,000, and the residence nil-rate band taper will continue to start at £2 million.
- Qualifying estates can continue to pass on up to £500,000 and the qualifying estate of a surviving spouse or civil partner can continue to pass on up to £1 million without an inheritance tax liability.
- The Government will restrict the scope of agricultural property relief and woodlands relief from inheritance tax to property in the UK from 6 April 2024. This measure affects individuals and the estates of deceased individuals and their personal representatives where the individual owns or owned land and/or woodlands located outside the United Kingdom (UK) in either the European Economic Area (EEA), the Isle of Man, or the Channel Islands. It will also affect trustees of trusts.
- The Government announced at Spring Budget 2023 its intention to legislate the proposals outlined in the consultation document as part of a package of simplification reforms that:
- provide that trusts and estates with income up to £500 do not pay tax on that income as it arises. Where a settlor has made other trusts, the amount is the higher of £100 or £500 divided by the total number of existing trusts (subject to some exceptions)
- remove the default basic rate and dividend ordinary rate of tax that applies to the first £1,000 slice of discretionary trust income
- provide that beneficiaries of UK estates do not pay tax on income distributed to them that is within the £500 limit for the Personal Representatives
- make technical amendments to ensure for beneficiaries of estates that their tax credits and savings allowance continue to operate correctly
Child Care extension
- The Government is now building on the announcement made in the Spring Budget 2023 which announced that they will extend the childcare allowance to parents of 1 and 2 year olds. All eligible working parents of children aged 9 months up to when they start school will be able to access 30 free hours of child care per week for 38 weeks per year from September 2025.
Corporation Tax
The Chancellor of the Exchequer announced a relatively small number of corporation tax-related measures. However, a number of the measures announced are significant and should be considered further.
Capital allowances (tax depreciation) - Full Expensing
- As may be recalled, the capital allowances “super-deduction” was a temporary capital allowances measure, effective as from 1 April 2021, which was designed to supercharge the UK economy emerging from the ill-effects of COVID by enabling companies investing in qualifying new plant and machinery assets to claim a 130% super-deduction on plant and machinery capital items and a 50% first-year allowance for qualifying special rate assets.
- Unfortunately, the super-deduction expired on 31 March 2023. The Chancellor however replaced the super-deduction with “Full Expensing” legislation.
- Full Expensing is a 100% first year allowance which allows companies to claim a deduction from taxable profits that is equal to 100% of qualifying expenditure in the accounting period in which the expenditure occurs. There is no expenditure ceiling.
- The Full Expensing measure was originally enacted to cover the period from 1 April 2023 to 31 March 2026, but further to the Chancellor’s Autumn Statement, the measure will be made permanent. The measure is, fiscally, an expensive one, estimated to cost the Exchequer £11bn in 2028/29 financial year. The measure signifies the UK Government’s desire to attract capital-intensive investment into the UK.
- Whilst Full Expensing is likely to benefit companies undertaking significant capital expenditure, it should be noted that the UK is primarily a service sector economy and many of the companies in this sector are unlikely to benefit significantly from this measure, given the beneficial pre-existing capital allowance provisions, such as the £1m Annual Investment Allowance.
- However, a tax regime which may benefit a number of companies in this sector is the research & development tax credit regime, which is to be changed significantly.
Research and Development tax credits – a changing of the regime
- The Autumn Statement saw the announcement of a radical change to the Research and Development tax credit regime in the United Kingdom.
- At present, there are two research and development tax credit regimes in the United Kingdom: one (simpler) regime aimed at small and medium-sized entities and the other regime aimed at larger businesses.
- The Chancellor of the Exchequer in the Autumn Statement announced that the Government will legislate in the autumn Finance Bill of 2023 to merge the current two regimes.
The “merged” regime will have effect as from accounting periods beginning on or after the 1st April 2024.
- The rationale for the proposal, as stated by the Government, is to simplify and improve the research and development tax credit regime.
- There are welcomed measures in the new regime, including but not limited to, grants received not automatically reducing the potential R&D tax relief claim.
- However, for SMEs, the combination of a new and more complex regime in conjunction with a more abrasive HMRC review regime may, for some companies, be a deterrent to undertaking an R&D tax credit claim.
- Once the new regime’s draft legislation has been published, we shall provide further commentary.
- Other corporation tax measures announced included:
- The tax benefits accruing to Investment Zones and Freeports being extended from 5 to 10 years.
- The 75% business rate discount for small retail, hospitality, and leisure businesses extended until 2025.
- Administrative changes to the Pillar II legislation recently introduced.
Should you have any queries or questions in respect of the above, please do not hesitate to contact your main contact at Arnold Hill & Co LLP or Reuben Fevrier or Lucy Duncan.
Image Source: iStock