Autumn Statement 2023 predictions: From inheritance tax to pensions and stamp duty – here’s what to expect from Jeremy Hunt

Chancellor Jeremy Hunt is finalizing his autumn statement, which will be presented next Wednesday.

The Ministry of Finance will have breathed a sigh of relief this week after inflation figures showed that interest rates had fallen to the lowest level in two years.

There should be more fiscal space as markets broadly agree that interest rates have peaked – meaning a decline in borrowing costs – and tax revenues are rising.

We look at how the Autumn Statement could affect net wages, and what this could mean for savings, investments and mortgages.

Stealth tax

Hunt is under pressure from his own party to cut taxes, but there are no plans to do so yet.

He is not expected to make major changes to tax policy next week, but millions of Britons will still have to pay more.

Hunt imposed a six-year freeze on personal allowances and thresholds, meaning more people will be dragged into a higher tax bracket.

This is known as a budget drag, and a record number will see part of their income fall within the higher 40 percent income tax rate.

It also means that millions of people on lower incomes will have to pay income tax, as the personal allowance – the level at which they start paying tax – is stuck at £12,570.

The Office for Budget Responsibility, which reviews the government’s economic plans, estimates that the freeze would create a further 3.2 million new taxpayers by 2028.

It says that 2.6 million people will pay more taxes.

Pensions

Under the triple lock rules, the state pension should increase every year by the highest rate of inflation, average income growth or 2.5 percent.

Pensioners should receive an 8.5 percent increase in their state pension next year, but there are concerns that the Ministry of Finance will tinker with this figure.

Last April, the triple lock was honored and the state pension increased by 10.1 percent, in line with the inflation rate.

But the government suspended the income element of the state pension increase in April 2022 as wage growth was temporarily distorted to more than 8 percent due to the pandemic, with pensioners receiving a 3.1 percent increase instead.

There is speculation that NHS bonuses have skewed the figure this time, doing something similar for the second time in three years.

Instead, the state pension would increase by 7.8 percent.

Inheritance tax

While Hunt has no plans to cut taxes across the board, one option has been mooted: cutting inheritance tax, which is 40 percent for estates worth more than £325,000.

Around 4 per cent of families pay inheritance tax – 27,000 in the 2020/21 tax year – but it is unpopular with the public who see it as a tax on death, property and the natural desire to pass wealth down through the generations.

If interest rates were cut from 40 to 30 percent, it would cost the Treasury an estimated £7.7 billion, which would rise to £15.4 billion if interest rates were halved.

The Treasury is also reportedly looking into increasing the threshold, from £325,000 to £500,000 for everyone, rather than limiting the extra benefit to homeowners with children.

That would cost the Treasury the least, at £6 billion between 2024/25 and 2027/28, but it would free 12,500 families a year from paying inheritance tax, according to calculations by financial services firm Quilter.

Lowering the nominal rate from 40 percent would mean the same number of estates would pay inheritance tax, but their bills would be reduced, the report says.

Is like

The Chancellor is widely expected to announce plans to reform the Isa system, which has come under fire for being too complicated.

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 shares Isa exclusively for UK-listed companies, and savers who use the product would be rewarded with an extra £5,000 allowance, The Telegraph reported.

Currently, savers can only put money into one of each type of Isa each tax year, but under new plans savers could also be given the option to open multiple Isas of the same type in one tax year.

Steven Cameron, pensions director at Aegon, said: ‘We may see changes to Isa rules to encourage more investment, perhaps specifically in Britain to boost growth.

‘Speculation includes increasing the annual investment limit, allowing more than one Isa per year or changing the Lifetime Isa rules – such as increasing the age restrictions or the investment limit. But with elections approaching, it is important to be realistic about what could be implemented by April.”

Savings

There are calls to put an end to the freeze on the personal savings allowance, which has been set at the same level since 2016 and has not been adjusted to inflation and rising interest rates.

According to AJ Bell, another million people will pay tax on savings interest this year.

“Tax bills are paid through self-assessment or deducted from income through an adjustment to the tax code,” says Laura Suter, head of personal finance at AJ Bell.

‘Many will not be aware that they owe the tax until HMRC sends them a letter to change their tax code and deduct the money from their payslip.

‘Ordinary savers should not get caught up in the complexity of taxes because they are doing the responsible thing and building up their savings.

‘Doubling the personal savings allowance would mean that £20,000 in a 5 per cent savings account would not be taxed for basic and higher rate taxpayers, removing the penalty for those with rainy day savings.’

Mortgages and starters

According to The Times, the Chancellor could unveil a support package for first-time buyers by extending the mortgage guarantee scheme.

The scheme, which helps first-time buyers borrow with a 5 per cent deposit, was first introduced in 2021 and is expected to end in December. It could be extended for another year.

Homebuyers could also reportedly see an increase in 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 above £250,000, rising to 10 per cent above £925,000.

The Ministry of Finance is reportedly going to expand the mortgage guarantee scheme for starters

However, The Times reported that there are concerns this could fuel inflation and it could be an option for the March budget instead.

For those saving for a home, there are calls to increase the limit on the Lifetime Isa, which currently has a cap on properties costing up to £450,000. However, the country is under fire for being unable to keep up with rising house prices, especially in London.

Suter said: ‘If the Lifetime Isa limit had risen in line with property prices, it would be over £560,000 today.’

During the pandemic, the government reduced withdrawal fees on Lifetime Isas from 25 per cent to 20 per cent, to help people access their money if their finances came under pressure. This was later reduced to 25 percent.

Suter added: “It seems impossible that the government is not looking at the current cost of living crisis in the same way.

‘Reducing the exit fee would be a cheap move for the government, helping first-time buyers who have been saving in their Lifetime Isa in good faith, but are now having to dip into their savings due to soaring inflation.’

Insurance premium tax

The Association of British Insurers has called on the government to cut the insurance premium tax rate to help control rising costs.

IPT is a tax on general insurance premiums and is levied at 12 percent on most policies. The tax is levied on insurers, who then typically pass on the majority of the costs to those who take out policies.

The ABI said that for car and home insurance alone, IPT now typically amounts to £98 per year.

> You’re now paying £264 a year in insurance tax while the Treasury rakes in £7.45 billion, warns LEE BOYCE

Mervyn Skeet, director of general insurance at the ABI, said: ‘Insurers are doing everything they can to offer insurance at competitive prices, despite being faced with some substantial cost increases outside of their control.

“There has never been a better time for the government to show its support for the millions of homeowners and businesses who are doing the right thing by protecting their families and livelihoods from sudden financial shocks, than to cut insurance premium taxes.”

Small companies

Business taxes will be cut next week to stimulate economic growth.

Hunt is reportedly planning to expand the full cost capital allowances scheme, allowing companies to reclaim the costs of investments in IT equipment and machinery.

However, he is not expected to extend the freeze on business rates, which will be met with anger by many retail chains and hospitality companies.