Chancellor Jeremy Hunt is putting the finishing touches on his Autumn Statement, which will be delivered next Wednesday.
The Treasury will have breathed a sigh of relief this week after inflation figures showed the headline rate had fallen to its lowest level in two years.
There should be more fiscal headroom given the markets are broadly in agreement that interest rates have reached their peak – which means a fall in borrowing costs – and rising tax revenues.
We look at how the Autumn Statement could affect take-home pay, as well as what it might mean for savings, investments and mortgages.
Chancellor Jeremy Hunt will deliver the Autumn Statement on Wednesday 22 November
Hunt is under pressure from his own party to slash taxes but there are, as yet, no plans to do so.
He is not expected to make any big changes to tax policy next week, but millions of Britons still face having to pay more.
Hunt imposed a six-year freeze on personal allowances and thresholds, meaning more people are being dragged into a higher tax bracket.
This is what is known as fiscal drag, and a record number will find some of their earnings fall within the higher 40 per cent income tax.
It also means that millions of lower earners will have to start paying income tax because the personal allowance – the level at which they begin to pay tax – is stuck at £12,570.
The Office for Budget Responsibility, which assesses the Government’s economic plans, estimates that freezing thresholds until 2028 will create an additional 3.2million new taxpayers.
It says 2.6million more people will pay higher rate tax.
Under the triple lock rules, the state pension should increase every year by the highest of inflation, average earnings growth or 2.5 per cent.
Pensioners should be getting an 8.5 per cent boost to their state pension next year, but there are concerns the Treasury could tinker with the figure.
Last April, the triple lock was honoured and the state pension rose 10.1 per cent in line with the inflation rate.
But the Government suspended the earnings element from the state pension rise in April 2022, because wage growth was temporarily distorted to more than 8 per cent due to the pandemic, and pensioners got a 3.1 per cent rise instead.
There is speculation it might say NHS bonuses have skewed the figure this time, and do something similar for the second time in three years.
This would see the state pension rise by 7.8 per cent instead.
How much is inheritance tax and who pays?
You need to be worth £325,000 if you are single, or £650,000 jointly if you are married or in a civil partnership, for your loved ones to have to stump up death duties.
This threshold is known as the ‘nil rate band’.
But there is a further chunky allowance which increases the threshold to a joint £1million if you have a partner, own a property, and intend to leave money to your direct descendants.
This is called the ‘residence nil rate band’.
Once an estate reaches £2million this own home allowance starts being removed by £1 for every £2 above this threshold. It vanishes completely by £2.3million.
If you are worth more than this, your beneficiaries will have to hand over 40 per cent of your assets above those levels to the Government.
While Hunt has no plans to cut taxes across the board, one option being mooted is to cut inheritance tax, which is charged at 40 per cent for estates worth more than £325,000.
Some 4 per cent of families pay inheritance tax – 27,000 in the 2020/21 tax year – but it is unpopular with the public who consider it a tax on death, property and the natural desire to pass wealth down the generations.
If the rate was cut from 40 to 30 per cent, it is estimated to cost the Treasury £7.7billion, which would rise to £15.4billion if it was slashed in half.
The Treasury is also reportedly exploring an increase in the threshold, from £325,000 to £500,000 for everyone, instead of limiting the extra perk to homeowners with children.
That would cost the Treasury the least, at £6billion between 2024/25 and 2027/28, but it would lift 12,500 families a year out of paying any inheritance tax, according to calculations by financial services firm Quilter.
Reducing the headline rate from 40 per cent would mean the same number of estates pay inheritance tax but their bills would be cut, it says.
It is widely anticipated that the Chancellor will announce plans to reform the Isa system, which has come under fire for being overcomplicated.
Among plans being explored, include the launch of a combined cash-and-shares Isa to encourage more investment in the UK stock market.
The Chancellor could also introduce a new stocks and shares Isa for UK-listed companies only, and savers that use the product would be rewarded with an additional £5,000 allowance, The Telegraph reported.
Currently, savers can only put money into one of each type of Isa every tax year – but under new plans, savers could also be allowed to open multiple Isas of the same type in a single tax year.
Steven Cameron, pensions director at Aegon said: ‘We may see changes to Isa rules to encourage more investment, perhaps specifically within the UK to stimulate growth.
‘Speculation includes increasing the annual investment limit, allowing more than one Isa per year or changing the Lifetime Isa rules – such as raising the age restrictions or investment limit. But with an election approaching, it’s important to be realistic about what can be implemented by April.’
There have been calls to end the freeze on the personal savings allowance, which has been set at the same level since 2016 and not been adjusted to reflect inflation and rising interesting.
A million more people are set to pay tax on cash savings interest this year, according to AJ Bell.
‘Tax bills are paid either through self-assessment or deducted from income through a tax code adjustment,’ said Laura Suter, AJ Bell’s head of personal finance.
‘Many won’t be aware they owe the tax until HMRC sends them a letter to change their tax code to deduct the money from their payslip.
‘It shouldn’t be the case that ordinary savers are caught up in tax complexity for doing the responsible thing and building a savings pot.
‘Doubling the personal savings allowance would mean that £20,000 held in a 5 per cent savings account would not be taxed for basic and higher rate taxpayers, ending the penalty on those who have rainy day savings.’
Mortgages and first-time buyers
The Chancellor could unveil a package of support for first-time buyers by extending the mortgage guarantee scheme, according to The Times.
The scheme, which helps first-time buyers borrow with a 5 per cent deposit, was first introduced in 2021 and is set to end in December. It could be extended for another year.
Homebuyers could also reportedly see an increase to stamp duty thresholds. The point at which people start paying stamp duty is currently set at 5 per cent of the value of a property over £250,000, increasing to 10 per cent over £925,000.
The Treasury is reportedly set to extend the mortgage guarantee scheme for first-time buyers
However, The Times reported that there are concerns it could fuel inflation and it could instead be an option for the March budget.
For those saving for a house, there are calls to raise the limit on the Lifetime Isa, which currently has a limit of properties costing up to £450,000. However, it has come under fire for failing to keep up with rising house prices, especially in London.
Suter said: ‘If the Lifetime Isa limit had increased in line with property prices it would sit at more than £560,000 today.’
During the pandemic, the Government reduced the withdrawal charge on Lifetime Isas from 25 per cent to 20 per cent, to allow people to access their cash if their finances were squeezed. This was later restored to 25 per cent.
Suter added: ‘It feels impossible that the Government doesn’t view the current cost-of-living crisis in the same way.
‘Reducing the exit fee would be a low-cost move for the government that would help first-time buyers who saved into their Lifetime Isa in good faith but, due to soaring inflation, now need to dip into their savings.’
Insurance Premium Tax
The Association of British Insurers has called on the Government to reduce the rate of Insurance Premium Tax to help manage rising costs.
IPT is a tax on general insurance premiums and for most policies, it is charged at 12 per cent. The tax is levied onto insurers, who then typically pass the bulk of the cost onto those taking out a policy.
The ABI said that for motor and home insurance alone, IPT now typically equates to £98 a year.
> You’re now paying £264 a year in insurance tax as the Treasury rakes in £7.45bn, warns LEE BOYCE
Mervyn Skeet, the ABI’s director of general insurance policy said: ‘Insurers are doing all they can to offer competitively priced insurance, despite facing some substantial increases in costs outside of their control.
‘Now has never been a better time for the government to show its support to the millions of homeowners and businesses who do the right thing by protecting their families and livelihoods against sudden financial shocks, than to reduce Insurance Premium Tax.’
Business taxes are set to be cut next week in a bid to stimulate growth in the economy.
Hunt is reportedly planning to extend the ‘full expensing’ capital allowance scheme, which lets businesses claim back the costs of investment in IT equipment and machinery.
However, he is not expected to extend the freeze on business rates, which will be met with fury by many high street retailers and hospitality firms.
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