Autumn Statement 2023: Individuals

The only real surprise in today’s Autumn Statement was not that the Chancellor reduced National Insurance Contributions, but by how much - 2%.

There were no announcements about Inheritance Tax, but this may just be deferred until nearer an election, along with changes to Capital Gains Tax and the rules for non-UK domiciled individuals. What this means for individuals is that while this Autumn Statement was pretty quiet, we may not be out of the woods yet.

If you require further information or support, get in touch or speak to your usual Crowe contact.

Our tax specialists identify the key tax changes and outline practical support for you and your business.

Tax cuts for partners and the self-employed
Residential landlords – Making Tax Digital on income tax
Inheritance Tax and Capital Gains Tax

Reduced employee rate of National Insurance
National Insurance cuts: the effect on FOMBs
What about non-doms?

Tax cuts for partners and the self-employed

Author: Nicky Owen, Partner, Head of Professional Practices

From 6 April 2024:

class 2 National Insurance Contributions (NIC) will be abolished
class 4 NIC will be reduced from 9% to 8%.

This will reduce the tax burden on partners and the self-employed.

Class 2 NIC is currently £3.45 per week and was due to rise to £3.70 from 6 April 2024 and is payable by all those that have profits above £12,570 and are above the state pension age. This will generate a saving of £192 per year.

The reduction in Class 4 NIC will generate a tax saving of £377 per year.

The payment of Class 2 NIC has previously been linked to access a number of state benefits including the State Pension.

HMRC’s systems will need to be updated to ensure that partners and the self-employed have access to those benefits if, and when required.

Those with profits below the threshold have been able to make voluntary Class 2 NIC to gain access to these benefits and that will continue.

A reduction in tax savings of £556 per year most likely will not bring in the votes from partners and the self-employed and won’t compensate for the increase that we have all felt as a result of inflation over the past year.

Residential landlords – Making Tax Digital for income tax is coming from April 2026

Author: Mark Stemp, Partner, Private Clients

Today the government has clarified its vision of how Making Tax Digital (MTD) is to be introduced for income tax from April 2026. This will impact landlords holding property in their own name.

Landlords with annual income of £50,000 will be required to join and operate MTD for income tax from April 2026. Electronic quarterly submissions will be required.

The £50,000 threshold is expected to be reduced to £30,000 from April 2027, although the government is keeping this reduced threshold under review.

HMRC are committed to limit the information they require from landlords who join MTD but with income below £85,000. In that case straightforward three line accounts is all that is required, so they will need to report income, expenses and profit. For those landlords with income over the £85,000 threshold, a breakdown of the expenses will be needed.

It has been recognised that those landlords who hold property jointly may not always have access to their expense records regularly so landlords in that position are able to choose not to submit the expenses quarterly but instead provide the expense figures annually.

Landlords and agents should continue to prepare for the introduction of MTD for income tax where their annual income from property exceeds £30,000. They should put in place systems and processes to collect and collate the information required to ensure that they are ready to make the quarterly submissions within a tight submission timetable.

Inheritance Tax and Capital Gains Tax

Author: Sue Daye, Partner, Private Clients

The Autumn Statement was silent on any changes to Capital Gains Tax (CGT) and in particular the rumoured possible abolition of Inheritance Tax (IHT).

Therefore, for the time being the legislation remains unchanged.

The speculation is likely to return early next year around the spring Budget in the belief that the government will be searching for vote winning tax changes.

Any removal of IHT, however, is likely to go hand-in-hand with a removal of the CGT uplift on death, thus pushing CGT liabilities into the next generation. If CGT rates are raised at the same time in line with income tax rates, this could negate some or all of the tax saving from ending the current IHT regime.

Our CGT rates are currently relatively low and only 10% on any gains on the sale of business assets up to a lifetime limit of £1 million per person. Although it is unlikely that relief for the sale of business assets will be completely withdrawn, a rethink of the relief or a possible change in rates may result in a less favourable position.

For those who had put plans on hold to either sell assets or undertake IHT planning, now is the time to revisit those thoughts and consider taking action while tax rates and reliefs are known.

Reduced employee rate of National Insurance

Author: Pete Fairchild, Partner, Private Clients

The Chancellor has cut employee National Insurance rates on income between £12,570 and £50,270 from 12% to 10%. This is effective from 6 January 2024.

This change is said to benefit 27 million employed workers. Someone on an average salary will save £450 per year, or for higher earners up to £754.

This is a tax cut for workers, which goes some way to cover the cost of freezing the tax thresholds.

Cuts to National Insurance were widely predicted. A reduction in this charge will always be welcome, particularly as the positive effect will be felt by employees during the final quarter of the current tax year.

It would have been preferrable to see total reform of the high-income benefit charge which has a totally unfair outcome in having to repay child benefit where one spouse earns £100,000, compared to two spouses earning £50,000 each. The net gain here could be higher than £450 in many cases.

It’s disappointing that there was no increase in personal allowances and the income tax rate bands given inflation. It is thought that the number of additional rate taxpayers will increase by 33% by the end of this parliament, which is unusual given the lack of high economic growth.

Overall, it seems all adults will be slightly better off, but not by much. It might just be enough to pay a month’s energy bill.

National Insurance cuts: the effect on FOMBs

Author: Simon Warne, Partner, Private Clients

The Chancellor’s Autumn Statement observed that inflation had recently reduced and held out hope of continuing reductions in inflation to 2%, but not until the end of 2025.

The abolition of Class 2 National Insurance Contributions (NICs) and reduction of Class 4 for the self-employed will be seen as a step in the right direction. Business growth was incentivised by a permanent 100% relief for plant and machinery in an attempt to encourage investment.

The headline grabber will be the 2% reduction in NICs for the UK’s 27 million earners, effective from 6 January 2024.

Business people will be pleased with the tax break for their employees but rather more concerned with keeping abreast of changes brought by the dynamic fiscal environment. Inflation and interest rate instability are still feeding into wage claims, borrowing costs, risk and input prices. The large increase in the National Living Wage to £11.44 per hour has both direct and indirect wage cost implications. Owner-managers will also be taking a closer look at the dividend vs bonus decision in the New Year. The 2% reduction in NICs further reduces the historic advantage of taking dividends, increasing the need to take case-specific advice in this area.

However it is questionable, in an environment of inflation, fiscal drag and mortgage costs increases whether these NIC reductions will truly “make work pay” as set out by the Chancellor today. Many of the 27 million earners have seen their tax bills increase alongside rising costs of food, fuel and housing.

The political question will be whether the Chancellor’s changes will make them feel any richer by the time of the next election, perhaps in spring of next year.

What about non-doms?

Author: Jennifer McNally, Partner, Private Clients

After much speculation that changes were on the horizon for the non-domicile regime, there was no mention of it in the Chancellor’s Statement.

UK resident and non-domiciled individuals can access this favourable regime during their first 15 years of UK tax residence.

The regime limits the exposure of UK tax to UK source income and gains, and foreign sources to the extent these are remitted to the UK. Exposure to UK Inheritance Tax is limited to UK situs assets. The regime has been very successful in making the UK an attractive place for such individuals to live. It is however much maligned by misinformation published by the press, leading to misconceptions that abolishing the regime would result in a great tax windfall.

Immediate action before the end of the tax year is not required for individuals who are not approaching deemed domicile status. However, now is an opportune time for non-doms to seek advice to ensure they plan appropriately for the future. It is certain that changes to the regime are inevitable, it’s just a question of timing.

Talk to us

If you have any questions regarding how the Autumn Statement impacts you or your organisation, or would like to discuss the possible opportunities, please get in touch.