After much speculation concerning significant reforms to inheritance tax (IHT) - including a cut to the headline rate, an increase to the nil-rate band or more drastic reform - the Autumn Statement 2023 failed to pack much of a punch for private clients, with the main focus being on promoting economic growth through tax cuts for businesses. However, the reduction in the main rates of national insurance (effectively a cut to employment income tax) and a couple of less headline-grabbing measures are noteworthy.
On national insurance, the key points are:
- the Government will introduce legislation to reduce the main rate of employee primary class 1 national insurance contributions (NICs) from 12% to 10%, from 6 January 2024;
- for the self-employed, from 6 April 2024:
- the main rate of class 4 NICs will be reduced from 9% to 8%; and
- compulsory class 2 NICs will be abolished (although these may still be paid voluntarily). This change amounts to a modest reduction in tax of £3.45 per week.
Whilst these will no doubt be welcome changes, they do not detract from the fact that other major tax thresholds remain frozen, increasing the number of taxpayers “by stealth”.
Elsewhere, it was confirmed that the Government will legislate in the Autumn Finance Bill 2023 to remove the pensions lifetime allowance with effect from 6 April 2024; and a call for evidence will be launched on a possible reform of the pensions system, allowing individuals to have pension contributions paid into their existing pension scheme when they change employer. Listen to our podcast for more detail on pensions announcements in the Autumn Statement.
Whilst not directly relevant to personal taxation, of great interest to business owners will be the decision to make temporary full expensing for the provision of new plant and machinery permanent (abolishing the previous expiry date of 1 April 2026), hailed as the "largest business tax cut in modern British history".
Introduced with slightly less fanfare were also several measures to continue HMRC’s fight against tax avoidance and tackling the “tax gap”:
- the promoters of tax avoidance schemes will now face more severe penalties (to be legislated for in the Autumn Finance Bill 2023), including a new criminal offence for continuing to promote tax avoidance schemes after receiving a stop notice; and
- HMRC will have a new power to bring disqualification action against directors of companies involved in promoting tax avoidance.
As is becoming a common theme, the Government will also invest a further £163m in HMRC to improve their “ability to manage tax debts”. Enhanced tax compliance (and the consequent increase in tax revenue) therefore clearly continues to be an area of focus for the Government.
Conspicuously absent however were any announcements on IHT, which suggests that any key policy reforms in this area have either been shelved or will be delayed until the 2024 Spring Budget. With this year’s Autumn Statement made against the backdrop of a looming general election and calls for tax cuts from Conservative backbenchers on the one hand and on the other, suggestions by Labour that they may move to substantially reform IHT, including possibly reducing valuable IHT reliefs (such as business property relief) if elected, we live in uncertain times indeed. It may be wise to make use of existing IHT reliefs and allowances, while they remain in their current form.