Autumn Statement is the prompt to review the structure of your wealth

Clarion director John Winstanley explains how high-quality financial planning can reduce the impact of tax changes announced by Chancellor Jeremy Hunt in his Autumn Statement.

John says: “Jeremy Hunt outlined the government’s balanced plan for economic stability, commenting that this will result in a shallower recession alongside reduced inflation and interest rates.

A significant part of the fiscal strategy outlined involves those who have more contributing more, whilst at the same time avoiding tax rises that could damage growth.

Whilst the changes announced will lead to increased taxation for many people, high-quality financial planning can help to reduce the impact.

The first change announced by the Chancellor is the reduction of the additional rate (45p) tax threshold from £150,000 to £125,140. For those with surplus income or capital, pension funding could help to offset some or all of the additional tax burden.

For example, if we assume that Paul earns £150,000 in the tax year 2023/2024, he will have to pay 45 per cent income tax on £24,860 of his salary, which is the amount of income that exceeds the newly-announced higher rate tax threshold of £125,140. By making a gross pension contribution of £24,860, his higher rate tax band will be extended to £150,000, meaning none of his income will be liable to the higher 45 per cent tax rate. This creates an income tax saving of £11,187 in total, made up of basic rate tax relief and the additional tax savings as he moves through the tax bands. So, as a new additional rate taxpayer, Paul has been able to make a gross pension contribution of £24,860 and his personal cost will be just £13,673.

The second change announced was the freezing of several tax thresholds through to April 2028, including the inheritance tax nil rate band, which has been set at £325,000 per individual since 2009, and £650,000 for a married couple. This brings estate planning into further focus and a robust lifelong financial plan can help to highlight a client’s potential exposure to this tax, as well as evidencing the affordability of numerous options to mitigate taxes due on death. Furthermore, the current downturn in global stock markets potentially provides an opportunity for clients to shift invested wealth into alternative inheritance tax-efficient structures, such as trusts, at a lower value, which will provide greater benefit as investment valuations recover.

Finally, much-anticipated changes to the capital gains tax regime were announced, although perhaps not as severe as expected. The annual capital gains tax exemption will reduce to £6,000 from £12,300 in April 2023, and further to just £3,000 in April 2024. Current subdued investment valuations could enable clients to restructure their financial affairs now and take advantage of the higher annual exemption whilst it remains. This would involve selling assets exposed to capital gains tax within the current £12,300 exemption and reinvesting the proceeds with a new base cost, and potentially via an alternative investment structure, to ensure tax efficiency is optimised moving forward.

Ultimately, the Chancellor’s Autumn Statement should be seen by people as an opportunity to review the current structure of their wealth, to maximise tax efficiency as they work towards their individual goals and objectives.”

The content of this article does not constitute financial advice and you may wish to seek professional advice based on your individual circumstances before making any financial decisions.

Autumn Statement is prompt to review structure of your wealth

Autumn Statement is prompt to review structure of your wealth