Chancellor of the Exchequer Jeremy Hunt has confirmed that inheritance tax (IHT) will remain frozen as part of his autumn statement, while the triple pension lock will also remain in place. However, the planned cap on childcare costs has been delayed for two years.
The so-called Dilnot reforms would have capped the amount anyone in England or Wales would have to pay for social care at £86,000 per person, with Hunt saying the councils had ‘very real concerns’ about their ability to implement the policy.
The IHT freeze includes both the standard zero-rate and residency band at £325,000 and £175,000 respectively. The zero rate band has been £325,000 since 2009. Had it risen in line with inflation it would now stand at £407,000, rising to over £500,000 by 2027/28, in line with inflation.
HM Revenue & Customs end of October figures released IHT’s total revenue since April hits £3.5bn – £400m more than at this time last year – with £600m coming in September alone.
According to Office for Budget Responsibility projections, this freeze will lead to an increase in revenue from £6.1bn in 2021/22 to £7.8bn in 2027/28, an increase of 28%.
Pledging to calm the economic ‘storm’ engulfing the UK amid runaway inflation – which sits at a 41-year high of 11.1% – Hunt is aiming to raise around £54billion over the course of the next two years in order to fill the current hole in British finances.
Other announcements made by Hunt include:
- The threshold at which the 45p rate of tax is paid will be reduced from £150,000 to £125,140
- The annual capital gains tax exemption rate will be reduced from £12,300 to £6,000 next year, and to £3,000 from April 2024
- Increase in public spending limited to 1% from 2025 to 2028, down from previous plans of 3.7%
- Personal income tax allowance and national insurance frozen until 2028
- Further funding for adult social care of £2.8bn next year and up to £4.7bn the following year, delivering 200,000 new care packages
- Energy industry to receive windfall tax expanded from 25% to 35%
- Tax-free dividend allowance reduced to £1,000 in 2023-24, then to £500 in 2024-45
- A £13.6bn package of business rate support
- The energy price guarantee will remain in place beyond April, although the cap will be raised from £2,500 to £3,000
- A further £3.3bn in 2023-24 and again in 2024-25 will be allocated to the NHS
- Government review of statutory retirement age to be published in early 2023
- The stamp duty reductions will remain in place until March 31, 2025 to support the housing market and those who work in it, after which the changes to the zero-rate thresholds will be reversed
- Introduction of the Organization for Economic Co-operation and Development’s “historic” global tax reforms to ensure that multinational corporations pay the correct tax in the countries where they operate
- The energy price guarantee will remain in place, but at a higher level of £3,000. The most vulnerable will receive up to £900 to help offset this
- Capping social rent increases to a maximum of 7% in 2024 – saving £200 for the average tenant
- The National Living Wage will rise to £10.42 per hour next year
Commenting on this ad, Emily Deane TEP, STEP Technical Advisor and Government Affairs Managersaid:
”STEP has long argued that the inheritance tax system is overly complex, unfair and in dire need of reform.
A low rate tax with few reliefs and exemptions is far preferable to a tax with a high overall rate which those who can afford professional advice can avoid.
However, instead of simplifying the system, which would still benefit the public treasury, the government is essentially maintaining the status quo by freezing the zero rate bracket.
It is incredibly disappointing that the government has frozen inheritance tax until 2028. Tinkering with rates and relief will do nothing to solve the enormous complexity that many families face.
Any changes must address the tax as a whole, not just the individual reliefs and rates, which, if removed and changed in isolation, can lead to increased avoidance and abuse.
Failure to reform inheritance tax would be a missed opportunity to make positive changes to address this complex, inefficient and unfair tax.
Andrew Tully, Technical Director, Canada Lifedescribed the IHT freeze as a “stealth tax hike”, meaning “more people are being caught in the IHT trap and having to file IHT returns and pay IHT on their property in a close future”.
tuly also criticized the ‘sting in the tail’ which could see millions of pensioners paying tax on their pensions following today’s decision to maintain the triple lockdown:
“This will be good news for the millions of retirees struggling with the current cost of living crisis. However, since inflation for retirees is likely to be higher than the headline rate of 10.1%, it may not fully cover the increases people are seeing in their spending. There is a sting in the tail as the state pension may exceed the frozen personal income tax threshold by 2028, potentially causing several million more pensioners to pay tax on Income.
Joanne Segars, Chair of NOW Trustees: Pensionscommented on the triple lock:
‘Pensioners will be reassured by the Chancellor’s commitment to the triple lockdown. This will bring much-needed respite to pensioners who are heavily reliant on state pension income to get by. Without today’s action’ today there was a possibility that pensions would have just risen in line with average earnings, which rose only 5.7% in the year to September, excluding bonuses. unfavorable financial situation, with inflation now at 11.1%.
For retirees and anyone approaching retirement, this news is a welcome relief at a time when the value of retirement pots has been particularly volatile due to heightened market uncertainty. The government’s decision to take this necessary step is fundamental to protecting the well-being of this group for years to come.
Colin Clarke, Head of Product Policy Strategy, Workplace Savings, Legal & General, said:
“It’s good to see the government has protected the most vulnerable, with the remaining pension credit increase and triple lockdown. But freezing tax breaks will push more people into higher tax brackets, although maintaining tax relief for pension contributions will ease at least some of the burden on them.
According to Clarke, however, the statement missed several opportunities “to help people save and enjoy the retirement they deserve.”
“First, there is the path to savings. Self-affiliation and pension freedoms should be reviewed to ensure that they do indeed increase savers’ retirement income. Let’s finally make some long-promised changes like lowering the age limit. And we should help people save properly by increasing engagement levels.
We should abolish the lifetime allowance for defined contribution pensions. Now that people are living and working longer and the onus is on the individual to fund those longer lives, it can penalize them for making good long-term investment choices. And the cost of living crisis makes it even more important not to restrict people’s hard-earned savings.
Finally, a regulated personalized orientation must be put in place. It will close the advice gap, helping businesses achieve better financial results and savers make better financial choices.