We highlight the key measures of the UK's Autumn Statement and outline their possible impact on your wealth arrangements.
November 22, 2023
UK chancellor, Jeremy Hunt, delivered his Autumn Statement announcing 110 measures that aim to boost long-term UK economic growth and ease some of the tax burden for British businesses and households.
It was accompanied by the Office for Budget Responsibility’s (OBR) economic and fiscal outlook, which gave a mixed review of the UK economy. Inflation isn’t expected to return to the Bank of England’s two percent target until the second quarter of 2025, while government gross domestic product (GDP) is now forecast to expand by 0.6 percent this year, rather than contracting by 0.2 percent.1
Here, we dissect the key points relevant to your personal wealth.
Impact: For employed and self-employed individuals with earnings of at least £50,270 per annum, this will represent a saving of £754 and £557, respectively.
Impact: There will now be a limited window to the end of the current tax year where those aged 16 and 17 can continue to open both a junior and adult ISA allowing for £29,000 in subscriptions. From April 6, 2024, children aged between 16 and 18 will no longer be able to open an adult ISA, reducing the amount parents can support ISA savings for children by up to £40,000.
Administrative changes will allow investors greater flexibility and choice in selecting different ISA accounts and moving funds between them.
Impact: The government is committing to ensuring early-stage, innovative British companies have access to the investment they need to grow and develop. This is good news for individuals looking to invest in privately-owned British businesses while benefiting from tax reliefs. Annual investment of up to £2m per tax year in EIS attracts income tax relief of 30 percent, capital gains tax free growth and an inheritance tax exemption. Annual investment of up to £200,000 per tax year in VCTs attracts income tax relief of 30 percent and provides tax free dividends and capital gains tax free growth.
Impact: Tax avoidance schemes have long been a target of the exchequer and these additional measures look to stop aggressive tax avoidance schemes at the root.
Impact: This is a welcome change to simplify the affairs of those who earned over the threshold for tax return completion (£100k per annum) or had to pay the high-income child benefit charge (those earning over £50k per annum who received child benefit, or their spouse received child benefit).
Impact: ATED is an annual tax payable mainly by companies and trusts that own UK residential property valued at more than £500,000. The increasing charge may trigger a review of whether the existing structure remains suitable as the case for de-enveloping may become more compelling.
Impact: With the average individual in the UK working for at least six companies across their lifetime, the issue of collecting multiple small pensions continues to increase. This can lead to confusion, detachment from pension savings, and a lack of a consolidated investment strategy. To tackle this, the government is launching a call for evidence on a lifetime provider model which would allow individuals to have contributions paid into their existing pension scheme when they change employer. This would provide greater clarity on retirement savings, encourage more active participation, and allow individuals to retain control over retirement provisions.
Impact: The measure will clarify the taxation of lump sums and lump sum death benefits, and the application of protections, as well as the tax treatment for overseas pensions, transitional arrangements, and reporting requirements. This will take effect from April 6, 2024.
A reduction in National Insurance and a general shift in rhetoric for personal taxation may be welcomed by many, but despite a freeze in alcohol duty most individuals won’t be in the mood to celebrate too soon.
The UK tax burden remains at a record high, and the announcements sit amid a backdrop of the reduced allowances and frozen thresholds announced in 2022.
For private clients, last year’s measures continue to leave personally invested, non-property assets, increasingly exposed to capital gains taxes at up to 20 percent, with dividends at up to 39.35 percent, along with a higher proportion of earned income drifting into higher and additional-rate tax bands.
The Spring Budget early next year could be the Conservatives’ last fiscal event before an election and were there to be a change in government, the new ruling party would surely set about putting their own stamp on the country’s finances.
For individuals navigating the impact of these ever-changing rules on their financial plans, diversity in the structures in which they hold wealth is important. As we’ve seen with ISAs this year and pensions in 2022, changes in rules may favour one structure over another, so remaining diverse in your allocation allows for an adaptable plan. For those seeking to manage this impact, there remains a range of tools available; from ISAs and pensions to international bonds and family investment vehicles, as well as a number of venture capital initiatives that reduce tax liabilities such as Enterprise Investment Schemes and Venture Capital Trusts.
1 https://obr.uk/efo/economic-and-fiscal-outlook-november-2023/#chapter-1
Please note: The information provided should not be mistaken for formal planning advice; it is imperative that you seek relevant advice for your own personal circumstances. RBC do not provide tax or legal advice and we would recommend that you seek appropriate advice in these areas. Rates of tax will be based on individual circumstance and tax rules are subject to change.
This publication has been issued by Royal Bank of Canada on behalf of certain RBC ® companies that form part of the international network of RBC Wealth Management. You should carefully read any risk warnings or regulatory disclosures in this publication or in any other literature accompanying this publication or transmitted to you by Royal Bank of Canada, its affiliates or subsidiaries.
The information contained in this report has been compiled by Royal Bank of Canada and/or its affiliates from sources believed to be reliable, but no representation or warranty, express or implied is made to its accuracy, completeness or correctness. All opinions and estimates contained in this report are judgments as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. This report is not an offer to sell or a solicitation of an offer to buy any securities. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Every province in Canada, state in the U.S. and most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as the process for doing so. As a result, any securities discussed in this report may not be eligible for sale in some jurisdictions. This report is not, and under no circumstances should be construed as, a solicitation to act as a securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. Nothing in this report constitutes legal, accounting or tax advice or individually tailored investment advice.
This material is prepared for general circulation to clients, including clients who are affiliates of Royal Bank of Canada, and does not have regard to the particular circumstances or needs of any specific person who may read it. The investments or services contained in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about the suitability of such investments or services. To the full extent permitted by law neither Royal Bank of Canada nor any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. No matter contained in this document may be reproduced or copied by any means without the prior consent of Royal Bank of Canada.
Clients of United Kingdom companies may be entitled to compensation from the UK Financial Services Compensation Scheme if any of these entities cannot meet its obligations. This depends on the type of business and the circumstances of the claim. Most types of investment business are covered for up to a total of £85,000. The Channel Island subsidiaries are not covered by the UK Financial Services Compensation Scheme; the offices of Royal Bank of Canada (Channel Islands) Limited in Guernsey and Jersey are covered by the respective compensation schemes in these jurisdictions for deposit taking business only.
We want to talk about your financial future.