The Spring Statement and your wealth

Three areas for review and action

25 March 2022

4 minute read

Following the tax announcements in the Chancellor’s Spring Statement, our Wealth Planning team reflect on the three key questions you should consider and seek advice on.

Chancellor Rishi Sunak delivered a Spring Statement geared towards helping British households through the cost of living crisis while at the same time needing to repay public debt from the pandemic.

1. Is your wealth structured tax efficiently?

Despite calls to reverse the planned National Insurance rate hike, it will go ahead – rising 1.25 percentage points in April.

However, the Chancellor announced changes in the Spring Statement that will impact on how much tax is paid on earnings.

From July the threshold for paying National Insurance will be aligned with the Personal Allowance at £12,570. This increases the minimum threshold by £3,000 per year and will save lower income earners up to £3301 per year.

Above this amount, earners will still pay more than before, but less than they would otherwise have paid under the 1.25 percentage point hike.

Mr Sunak also announced that from April 2024, basic rate income tax will drop from 20% to 19%.

However, there’s a lot of inflationary pain to get through between now and then. Official figures2 revealed that inflation for February was at 6.2% – a 30-year high. Further to that, the Office for Budget Responsibility said inflation would peak at 8.7% at the end of the year and average 7.4% for 20223.

The highest income households will continue to contribute more in terms of taxation in general, with the higher rate income tax threshold frozen at £50,270 for four years, which is now set to have a larger impact given the rise in expected inflation over this period.

There’s also the Capital Gains Tax (CGT) allowance which will remain at its current level of £12,300 – again until April 2026.

You should take steps to reduce the impact of inflation, using this as an opportunity to review financial plans and ensure you're making full use of all available tax allowances to protect your wealth as much as possible.

Anyone with savings held in cash is seeing the value of their money erode at pace. It’s therefore crucial to ensure any long-term money is working hard, which may mean increasing contributions to pensions and investments.

Before the end of the tax year it’s also important to review any opportunities for using additional tax saving schemes including Enterprise Investment Schemes (EISs) and Venture Capital Trusts (VCTs) which offer 30% tax relief.

2. What's next for your pension?

There's often speculation that the government may change pension tax relief rules. The Chancellor’s tax plan4, published alongside the Spring Statement, sets out ambitions for future tax policy. So far, there is no indication of whether simplifying pensions tax relief is going to be part of the tax plan.

We always advise utilising the tax breaks available on pension contributions where possible.

In 2024 when the basic rate of income tax is cut from 20% to 19% it will impact the tax relief on pension contributions.

A reduction in the basic rate of income tax means that people will get lower tax relief on their pension contribution.

This won't affect earners on the higher rates of income tax but for lower earners it means that to get the same retirement income, people will have to pay a little bit more into their pensions.

If you're paying basic rate income tax, you may want to think about putting more into your pensions over the next couple of years to make the most of the current 20% tax relief.

Meanwhile, the Lifetime Allowance (LTA) at its current level of £1,073,100 is to be frozen until April 2026.

The Office for Budget Responsibility expects that the CPI inflation rate will average 7.4%3 this year. This expectation will further erode the real value of the LTA.

If your pension value exceeds the LTA now, or could exceed it at some point in the future, now is the time to plan ahead.

Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCT) offering 30% tax relief could be useful here too.

3. Have you reviewed the potential impact of Inheritance Tax (IHT) on your estate?

There were no new announcements on Inheritance Tax in the Spring Statement. Therefore, as previously announced, the Inheritance Tax nil-rate band will remain at existing levels until April 2026.

The nil-rate band will continue at £325,000, and the residence nil-rate band will continue at £175,000. Qualifying estates can continue to pass on up to £500,000 and the qualifying estate of a surviving spouse or civil partner can continue to pass on up to £1 million without an inheritance tax liability.

With certainty over future nil-rate bands, now is a good time for you to review your estate plan with a Wealth Planner or to take advice and start planning if you haven’t already. Many people are keen to avoid handing over their hard earned wealth to HM Revenue & Customs. The good news is that, with careful planning, the amount of IHT payable on death can be reduced.

Next steps

By seeking advice from our Wealth Planners, you can plan for your future with confidence.

Speak to your Wealth Manager or contact us if you'd like to arrange a meeting with a Wealth Planner to discuss your options.

Your Wealth Planner can help you understand the effect of tax on your wealth and offer tax-efficient wrappers for your investments. They’ll be able to guide you towards making the right decision for your financial planning needs. Your planner can't offer tax advice – you should seek that independently. Please bear in mind that tax rules can change in future and their effects on you will depend on your individual circumstances.

This article does not constitute personal financial, tax or legal advice. Each person’s circumstances are different so if you're unsure about investing, you should speak to your Wealth Manager.

The value of investments can fall as well as rise. You may get back less than you originally invested.

EIS and VCT investing comes with a number of risks and issues that investors need to consider before investing. For example, smaller companies have higher failure rates than more established companies and it’s possible for an investor to lose the whole of their capital. But the impact of the loss may be mitigated in part (but not all) by tax reliefs where applicable.

Things to consider

The value of investments can fall as well as rise. You may get back less than you originally invested.

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