![\"\"](\"https:\/\/www.buckinghamgate.co.uk\/blog\/wp-content\/uploads\/2022\/11\/Downing-St-300x205.jpeg\")
\nThe announcements made yesterday by our fourth Chancellor in 5 months, Jeremy Hunt, will have come as little surprise to most. In a clear attempt to do the precise opposite of the \u2018shock and awe\u2019 tactics of the Liz Truss \/ Kwasi Kwarteng Government, most of the content of yesterday\u2019s announcement had been rumoured or leaked to the press already.<\/p>\n
First to the good news, if we can find any in there\u2026<\/strong><\/p>\n Well. The markets didn\u2019t hate the announcements. Again, most of them were known beforehand and would have already been priced in \u2013 the FTSE 100 barely moved yesterday ending the day down just 4 or so points.<\/p>\n In addition, Jeremy Hunt renewed the Government\u2019s commitment to tax-efficient (and growth-promoting) investments such as VCTs (Venture Capital Trusts) and EIS (Enterprise Investment Schemes). There had been some small rumours that these might have been on the chopping block so it is encouraging to see these additional tax-efficient vehicles retained.<\/p>\n Finally, there was nothing much was changed in terms of the actual structure<\/strong>\u00a0of the tax system. The core way that tax operates and the rules and legislation surrounding it were broadly kept the same.<\/p>\n <\/p>\n Now\u2026 onto the not so good news.<\/strong><\/p>\n First up was the reduction in the 45% tax rate band to kick in at \u00a3125,140 of earnings. Although this is not good news, it does actually make the UK tax system a fraction more logical.<\/p>\n At the moment we have a 0% rate, a 20% rate, then a 40% rate, followed by an effective 60% rate on income as it goes over \u00a3100,000. We then go back to a 40% rate before the 45% rate kicks in at \u00a3150,000.<\/p>\n Now, the 45% rate will follow right after the 60% rate, so \u2013 still not a totally progressive system, but it does make a little bit more sense at least.<\/p>\n We will also see a significant reduction to the \u00a32,000 tax free dividend allowance to \u00a31,000 and then \u00a3500 over the next couple of years.<\/p>\n Along a similar vein, we will see the current \u00a312,300 Capital Gains Tax allowance cut to \u00a36,000 and then \u00a33,000.<\/p>\n These two items will be much more significant for our clients and there may be some planning work to do in these areas over the coming months. In both cases, these allowances are being cut by circa 75%. Some may have argued that they were too generous before, but the cuts here are substantial.<\/p>\n To put this into context, let\u2019s assume that a typical \u2018growth\u2019 portfolio generates dividends of around 1.5% per annum and an \u2018income\u2019 portfolio might generate 4% per annum.<\/p>\n At present, you would need a portfolio of just over \u00a3133,000 in the \u2018growth\u2019 portfolio or \u00a350,000 in the \u2018income\u2019 portfolio before you were at risk of breaching the dividend allowance.<\/p>\n Moving forward, those figures will be just \u00a333,000 and \u00a312,500 respectively. A major change and one that might pull more people into the self-assessment system in the future \u2013 something we will be keeping an eye on.<\/p>\n As such, tax planning will gain even more importance as we structure clients\u2019 portfolios. Religious use of ISA allowance, pension contributions will become increasingly vital if we are to minimise what is likely to be a larger tax bill in the coming years. Once these are utilised we continue to look at the appropriateness of additional contributions to higher risk products such as EISs or VCTs.<\/p>\n Other than the above changes, the major headline here is\u00a0fiscal drag<\/strong>. This is the term used for the Government adopting a now very popular strategy of inflating its way out of problems. In practical terms, this means an effective freeze to the Income Tax rates and Inheritance Tax thresholds for many more years.<\/p>\n The IHT one is the real headline here for me. The standard IHT allowance of \u00a3325,000 has been frozen since 2009 and it is now mandated to remain at the current level until 2028 \u2013 almost 2 decades of freeze. Inflation from 2009 to present day has been around 45% so that would imply an allowance of circa \u00a3471,000 just to keep pace.<\/p>\n Granted, we had the introduction of the Residence Nil Rate Band of \u00a3175,000 in 2017, but even that was now 5 years ago. Inflation has been around 22% in those 5 years\u00a0and\u00a0<\/strong>a lot of people don\u2019t qualify for the Residence Nil Rate Band anyway for various reasons.<\/p>\n The result will be a lot more \u2018normal working families\u2019 being pulled into the grasp of IHT. A tax originally conceived to tax only the very wealthiest in society.<\/p>\n Please don\u2019t get me wrong. I do think that these measures are broadly necessary to avoid the UK becoming the next country to face a \u2018debt crisis\u2019 and to hopefully maintain what credibility the UK has left as an international financial centre and investment hub.<\/p>\n The policies of Truss and Co were never going to fly with the markets. The announcement of billions in tax cuts was a bold move but announcing them with no fiscal forecast and no shred of an idea about how they were going to be paid for was just plain madness.<\/p>\n What we can be sure of is that the value of good financial planning will increase over time. Those ISA contributions you were making over the past decade (when some commentators were arguing that ISAs no longer made sense because of low interest rates) suddenly look very attractive indeed.<\/p>\n As is often the case, the devil is in the detail and the Buckingham Gate team and I will be scrutinising the statement over the coming days to see if there are any hidden nuggets of information that didn\u2019t make the headlines.<\/p>\n We will of course be addressing these tax rises and planning options for mitigating them when we hold review meetings with clients.<\/p>\n In the meantime, if you have any questions at all about how these changes might impact on you, please don\u2019t hesitate to contact a member of the Buckingham Gate team by calling\u00a0020 3478 2160<\/strong>\u00a0or by emailing\u00a0contact@buckinghamgate.co.uk<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":" The announcements made yesterday by our fourth Chancellor in 5 months, Jeremy Hunt, will have come as little surprise to most. In a clear attempt to do the precise opposite of the \u2018shock and awe\u2019 tactics of the Liz Truss \/ Kwasi Kwarteng Government, most of the content of yesterday\u2019s announcement had been rumoured or… Read more »<\/a><\/p>\n","protected":false},"author":5,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-3309","post","type-post","status-publish","format-standard","hentry","category-uncategorised","wp-sticky"],"_links":{"self":[{"href":"https:\/\/www.buckinghamgate.co.uk\/blog\/wp-json\/wp\/v2\/posts\/3309","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.buckinghamgate.co.uk\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.buckinghamgate.co.uk\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.buckinghamgate.co.uk\/blog\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/www.buckinghamgate.co.uk\/blog\/wp-json\/wp\/v2\/comments?post=3309"}],"version-history":[{"count":4,"href":"https:\/\/www.buckinghamgate.co.uk\/blog\/wp-json\/wp\/v2\/posts\/3309\/revisions"}],"predecessor-version":[{"id":3315,"href":"https:\/\/www.buckinghamgate.co.uk\/blog\/wp-json\/wp\/v2\/posts\/3309\/revisions\/3315"}],"wp:attachment":[{"href":"https:\/\/www.buckinghamgate.co.uk\/blog\/wp-json\/wp\/v2\/media?parent=3309"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.buckinghamgate.co.uk\/blog\/wp-json\/wp\/v2\/categories?post=3309"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.buckinghamgate.co.uk\/blog\/wp-json\/wp\/v2\/tags?post=3309"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}