The eligibility for some bereavement payments has now been extended to unmarried couples, but there are two major caveats.

In 2021, just over one in five couples living together were cohabiting but not married or in a civil partnership. Despite the growth in cohabitation, the UK tax and benefit systems have an ambivalent approach to those individuals outside the two legal frameworks. For example, an unmarried couple’s joint income is taken into account when considering Universal Credit claims, but they are unrelated individuals when it comes to inheritance tax.

Two challenges to an example of this differential treatment made it to the courts several years ago. Both cases concerned bereavement benefits, which the law at the time restricted to surviving spouses and civil partners. In both instances, the government lost, but not because it was discriminating against unmarried couples. The courts’ decision hinged on the unequal treatment of each couple’s children, which fell foul of the European Convention of Human Rights.

Now three years after the second defeat, legislation is finally going to ‘rectify’ the original law. The revisions will mean that if one individual in an unmarried couple with dependent children were to die, the survivor would be entitled to the same higher rate of Bereavement Support Payment (BSP) as would be available to a surviving spouse or civil partner. The change will be backdated to 30 August 2018, when the Supreme Court gave the first ruling. The backdating will also cover entitlement to Widowed Parent’s Allowance, which was replaced by the BSP for new claimants from 6 April 2017.

While the inclusion of some unmarried couples of BSP is welcome, it comes with two major caveats:

·    It applies only to unmarried couples with dependent children, which includes cases in which the survivor is pregnant at the time of their partner’s death. Unmarried couples who do not have dependent children remain excluded from BSP.

·    The amount of BSP is far from generous. The higher rate of BSP was set in 2017 as a lump sum of £3,500, plus up to 18 monthly payments of £350. Unlike most other benefits, it has been unchanged since, so inflation has cut its value by nearly a fifth.

If you are cohabiting – or even if you are not – the BSP rules are a reminder of the inadequacy of the ‘safety net’ provided by the state in 2023. With this in mind, it’s important to build your own safety net and protect your future financial circumstances.

How much income do you actually need in retirement? New research shows an increase that might surprise you.  

In 2019, the Pensions and Lifetime Savings Association (PLSA) published research examining how much three different levels of retirement living standards would cost for couples and those living on their own. The three standards were summarised as:

·    Minimum: Covers all your needs, with some left over for fun

·    Moderate: More financial security and flexibility

·    Comfortable: More financial freedom and some luxuries.

To get a sense of the difference across these living standards, the transport category provides a useful benchmark. For a couple, the minimum level assumes no car, the moderate level has one three-year-old car replaced every ten years, while the comfortable pair have two cars, each replaced every five years.

The trio of living standards is updated for changes in spending patterns and the revised costs calculated by Loughborough University. The latest results for people living outside London were published in January, based on April 2022 prices. They showed a sharp rise in the income needed at all three levels, as the graph indicates.

Source: PLSA January 2023.

Not all of the rise was due to inflation, which was 9.0% on a CPI basis in April 2022. Some of the higher income requirement was due to revision to the mix of spending that “saw the amount of food included within the budget increasing to bring it into line with the up-to-date nutritional research on a healthy diet”. The disproportionate rise to the minimum figures (18% for singles and 19% for couples) also reflected where spending was concentrated. At the minimum level, 34% was applied to two categories with fast-rising inflation – food and fuel.

Inflation in 2022 has been such that the retirement living standard income levels would need another 5.3% added to them, just to bring them into line the CPI increase from April 2022 to January 2023. State pensions will rise by 10.1% in April 2023, taking the new state pension up to £203.85 a week (£10,600 a year), which will help counter rising retirement costs, but a better comparison is the increase in state pensions in April 2022 – just 3.1%.

If you feel that your future retirement income is not on track to deliver your chosen standard of living, then the sooner you review matters, the better.

Tax treatment varies according to individual circumstances and is subject to change.

The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance.

When it comes to student loans, the media focus is usually on tuition fees (outside Scotland), but there’s another loan that shouldn’t be overlooked – and that includes Scotland.

In January 2023, the Department for Education (DfE) issued a press release headlined Cost of living boost for students. However, the ‘boost’ was more akin to a damp squib:

·    There was a reannouncement of a statement made in February 2022 that tuition fees in England would be frozen at £9,250 for the 2023/24 and 2024/25 academic years. This was a quid pro quo for cutting the earnings threshold at which new students from the 2023/24 academic year onwards must start repaying their loans.

·    Maintenance loans will increase by 2.8% for 2023/24, taking the maximum for a student living away from home and studying in London to just over £13,000 (just under £10,000 elsewhere). The Office for Budget Responsibility currently projects Consumer Prices Index inflation in September 2023 at around 7%.

Two days after the DfE press release, the House of Commons Library issued a research note entitled, The value of student maintenance support. The parliamentary researchers observed that once the 2.3% increase to the maintenance loan in 2022/23 was taken into account, “the real cut in the maximum value of support in between 2021/22 and 2023/24 is 11% or around £1,100”.

That is not the end of the bad news on student loans. Part of the maintenance loan is means-tested in England, with only students whose parental household income is no more than £25,000 being eligible for the full loan. Above that income threshold, which has remained frozen since 2008, the loan entitlement is reduced by £1 for around £7.00 of income to a minimum of about 45­–50% of the full amount, depending on where the student is living and attending university. The reduction is classed as a ‘parental contribution’, often a contentious point with both parent and student.

Scotland, Northern Ireland and Wales have slightly different systems for student maintenance, but all suffer from low maximum levels and some form of means testing (although in Wales this applies only in the determining mix between loan and grant rather than the total sum).

If you have children (or grandchildren) heading for university, maintenance costs are becoming an increasingly significant element of any funding plans. While there is government loan to cover the full tuition fees, on the maintenance front, the government loan will all too often be far from adequate.

Recent research has compared the value of personal national insurance contributions (NICs) with the value of state pension received. The results may surprise you.

NICs are not well understood, a fact exploited by Chancellors past and present. Many people mistakenly believe that NICs accumulate in a government fund to pay future benefits, in a similar way to how the traditional pension scheme operates. This is not the case. In practice, NICs are just another form of tax on earned income and one that successive governments have found easier to increase than income tax itself.

Up until recently, the government has allowed people to fill historic gaps in their NIC record up to six years after the year in question, but on 6 April, this will come to an end.

An individual’s NIC record determines how much state pension they will receive. The question of whether NICs provide value for money in terms of the pension benefits is thus a valid one and has attracted the attention of the number crunchers at the Pension Policy Institute (PPI).

The PPI modelled the employee NICs payable and pension outcomes for men and women at current ages of 20, 40 and 60 with earnings in the bottom 10%, middle and top 10% of earnings.

Interestingly, the PPI assumed that while the middle earners would have a life expectancy that matched the principal projection from the Office for National Statistics (ONS), the low earners would live three years less and the high earners three years longer. That six-year socio-economic gap has been noted by the ONS in the past and is a reminder of the differences that are hidden with population-wide life expectancy figures.

The PPI produced a series of tables showing what proportion of each individual’s state pension was funded by their NICs (excluding employer’s contributions), meaning anything less than 100% implied more coming out in pension than what went in as NICs. The results are summarised below.  

Source: Pension Policy Institute January 2023.

As shown in the table, women do better than men due to living longer, while the lower paid win over the higher paid because under the new state pension regime that has operated since 2016, pension accrual is at a flat rate, regardless of earnings.

Now is a good time to check your own NIC record as the opportunity to pick up missed payments beyond six years ago will disappear from 6 April.

The Financial Conduct Authority does not regulate tax advice. 

Tax treatment varies according to individual circumstances and is subject to change.

Annual inflation in 2022 was 10.5%, but not all components rose by double digits.

Source: ONS.

Annual inflation, as measured by the Consumer Prices Index (CPI), was 10.5% in 2022 against 5.4% in 2021. The official CPI calculator, the Office for National Statistics (ONS), says that the last time inflation was as high was in 1981. But what drove the inflation indices to four-decade highs last year? As is often the case, a simple economic question does not lead to a straightforward answer.

The hierarchy graph above offers a visual response:

·    The ONS CPI inflation ‘basket’ contains 12 categories, each with different weights (see figures in brackets) based on typical household expenditure. In 2022, the second largest category of spending, Housing, Water, Electricity, Gas and Other Fuels, recorded an increase of 26.6%. Unsurprisingly, the star performer was gas prices, which rose 128.9% across 2022. That alone was worth a 1.8% rise in the CPI. Electricity prices jumped by 65.4%, adding another 1.3% to the CPI.

·    The next largest contributor to inflation, with a slightly smaller weighting in the basket, was Food and Non-Alcoholic Beverages, which rose by 16.8% over the year. The ONS says this category’s annual inflation has increased for 17 consecutive months (from -0.6% in July 2021) and is now at 1977 levels. It accounted for 1.95% of CPI inflation.

·    In 2022, the category with the largest weighting in the CPI basket, Transport, played a less significant role in terms of overall inflation (0.9% on the CPI) than it did last year. Over the year, the category’s inflation was 6.5%. In June, annual transport inflation was nearly 15%, driven by the rise in petrol and diesel prices. As these fell back, so too did the transport inflation rate.

·    The category with the lowest inflation (2.0%) was also the one with the second lowest basket weighting – Communications – so did little to counter the sharp rises elsewhere.

The two main causes of 2022 inflation – food and gas prices – help to explain why inflation is expected to drop sharply in 2023. Both rose in response to the war in Ukraine and as that is now a year ago, prices should start to stabilise – indeed wholesale gas prices have fallen from their peaks.

The consensus is for the annual CPI number to end the year around 5%, less than half of 2022’s level but still enough to mean any long-term financial plans need to build in the value-eroding effects of inflation.

During the non-news week before Christmas, there was a significant announcement on the Making Tax Digital (MTD) scheme for income tax.

In recent months, you could be forgiven for thinking that the infrastructure of UK plc was falling apart. One element of the general malaise that received less publicity than it arguably deserved was an announcement from the Treasury about HMRC’s tax technology masterplan, MTD. 

The idea of MTD started in 2015, when the then Financial Secretary to the Treasury promised that, “By 2020, HMRC will have moved to a fully digital tax system where bureaucratic form-filling is eradicated – taxpayers should never have to tell HMRC information it already knows.” Three years beyond that target date, and six financial secretaries later, the plan has not quite lived up to expectation.

A key feature of MTD is that taxpayers are required to submit quarterly returns digitally to HMRC. As VAT was already subject to quarterly reporting, it was the first tax to come within MTD system in April 2019. Until the pre-Christmas announcement, MTD had been due to be extended from April 2024 to landlords and self-employed individuals with gross annual income of more than £10,000. Most general partnerships with income over £10,000 were due to join a year later.

On 19 December, two days before the House of Commons went into recess, the current Financial Secretary to the Treasury issued a written statement announcing that:

·    For landlords and the self-employed with gross income of over £50,000 a year, MTD would become mandatory from April 2026.

·    Landlords and the self-employed with gross income of over £30,000 a year would enter MTD from April 2027.

·    The government will “review the needs of smaller businesses, and particularly those under the £30,000 threshold”.

·    General partnerships will now become subject to MTD “at a later date” than April 2025.

The Institute of Chartered Accounts of England and Wales echoed the view of most tax professionals when it said “over the last several months it had become clear that a deferral was inevitable…”

Before you breathe a sigh of relief, nobody expects MTD to disappear. As the Autumn Statement showed, the Treasury will not miss any opportunity to raise more revenue.

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax advice.

There is an interesting lesson to be learned from a think tank’s pension criticism.

Think tanks come in many different guises, some more independent than others. Those without political links – overt or covert – can often provide a valuable, spin-free insight into government policy. One of the best known in this category is the Institute for Fiscal Studies (IFS) whose director, Paul Johnson, is near ubiquitous in the media at Budget time.

As its names suggests, the focus of the IFS is taxation, but it covers many other related economic areas from student finance, through savings and investment to health and social care. In a recent report, Death and taxes and pensions, the IFS took a close look at those three topics. The report’s findings included:

·    Pensions are being increasingly used as a vehicle for bequests. The IFS view is that the current tax system, which dates back to the introduction of pension flexibility in 2015, “results in the bizarre situation where pensions are treated more favourably … as a vehicle for bequests than they are as a retirement income vehicle.”

·    Basic-rate income tax could straightforwardly be levied on all funds that remain in pensions at death. At present, any payments to beneficiaries of pension death benefits are subject to income tax, but only if the pension owner was aged 75 or over at death. Under today’s rules that can mean benefits escape tax on death before age 75 or if the recipient in a non-taxpayer, e.g. a minor child.

·    Pension pots should be included in the value of estates at death for the purposes of inheritance tax (IHT). With a few technical exceptions, there is no IHT on pension death benefits, regardless of age at death or the beneficiary.

The IFS recommends that reforms of the system should be announced “as swiftly as practical”. In practice, any immediate change is unlikely, given that it was a Conservative Government that introduced the 2015 changes. It was also not so long ago that Rishi Sunak, in his then role of Chancellor, dismissed a raft of IHT reforms proposed by the Office of Tax Simplification.

All of which means that, for now at least, you may want to review the role your pension plans play in your retirement and ensure you have made the right choice(s) in nominating the beneficiaries of your pension death benefits.

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax advice.

From January, National Savings & Investments (NS&I) will increase its premium bond prize fund rate to 3% and reduce £25 prizes, instead increasing the number of higher-value prizes that are up for grabs.

In January 2022, about 98% of all the premium bond prizes paid out by NS&I were just £25. You were lucky if you even won that amount, as the odds of any prize in the monthly draw were 1 in 34,500. At the time, NS&I was dealing with a problem posed by ultra-low interest rates. Its prize fund rate had been cut to 1.0% in December 2020, but it did not want to forgo its two £1 million prize winners each month, so there was less money available for other prizes. The result was the near ubiquitous £25 win.

Over 2022, as interest rates rose, the prize picture changed. In December, NS&I announced its third premium bond prize rate increase of the year, taking effect from the start of 2023:

·    The prize rate is now 3.00%;

·    The chances of a win at the monthly draw are 1 in 24,000; and

·    Only just over half of all prizes will be £25. However, 99% of the prizes will be £100 or less, as the table below shows.

Source: NS&I.

Nearly £120 billion was invested in premium bonds as of 31 March 2022 according to the most recent NS&I accounts – about 58% of all NS&I’s funds. They are by far NS&I’s best-selling product – were it not for premium bond sales NS&I would have seen a £5.66 billion cash outflow in 2021/22.

It is debatable whether premium bonds are a good home for savings. The 3.00% prize interest rate is better than what NS&I offers on its other variable interest rate products (e.g. 2.32% annual equivalent rate for Income Bonds and only 1.75% on the Direct ISA) and the prizes tax free. But:

·    The personal savings allowance (£1,000 a tax year for basic rate taxpayers and £500 for higher rate taxpayers) means many people do not pay tax on interest; and

·    The brain-numbing mathematics that underlie the prize draw mechanism lead to the average bondholder seeing a return below the prize rate. The smaller your holding, the greater the likelihood that your winnings over a year will be nil.

The maximum investment in premium bonds is £50,000, but if you are considering placing anything like that sum of money in bonds, you would be well advised to seek financial advice before placing your trust in Electronic Random Number Indicator Equipment (ERNIE).

The Financial Conduct Authority does not regulate tax advice and cash deposits. 

Tax treatment varies according to individual circumstances and is subject to change.

Inflation surged in 2022, but can it reverse in 2023?

Source: ONS, Eurostat, BLS.

Forecasters of inflation were way off target for 2022. For example:

·    In December 2021, the Bank of England’s Monetary Policy Committee said “CPI inflation was expected to remain around 5% through the majority of the winter period, and peak at around 6% in April 2022”.

·    Two months earlier, the Office for Budget Responsibility (OBR) in its Economic and Fiscal Outlook said “News since we closed our forecast would be consistent with inflation peaking at close to 5% next year. And it could hit the highest rate seen in the UK for three decades”.

The OBR was a decade out. At the time of writing, it looks as if the peak 2022 reading for UK CPI inflation was October’s 11.1% – the highest for 41 years according to the Office for National Statistics. Is that the peak for this inflationary cycle, as the data in the graph above hints?

The good news is that, as of now, inflation does look set to drop. Some of that is down to what economists call the ‘base effect’. Annual inflation is the difference between prices, 12 months apart, so each new month’s inflation calculation loses the oldest month of data which is replaced by the latest month. If the month that disappears was one in which there was an inflation spike and the new month is spike free, then inflation falls.

For example, in the month of April 2022, prices rose by 2.5% because of the utility price cap increase. If April 2023 sees monthly price rises of a still high 1.0%, then annual inflation will drop by 1.5% (2.5% – 1.0%).

Some commodity and service prices have already fallen from the highs created by Covid-19 supply issues and/or the Ukraine war and these drops will work through to domestic inflation. For example, by mid-December the price of wheat had almost halved from its February peak. Shipping costs have also fallen dramatically from their 2022 highs.

One point to remember is that a falling inflation rate does not mean overall prices are falling, so your financial planning may well need a review to take account of the damage inflicted by 2022’s CPI.

If your employer pays for the fuel in your company car, it may cost you more than you expect.

As the Autumn Statement was not a Budget, detailed publications that would normally emerge as the Chancellor sat down have taken time to appear. For example, the HMRC projections of how many more capital gains tax (CGT) payers there would be because of the much-reduced annual exemption (another 570,000 by 2024/25) did not appear until the Monday after the Autumn Statement, missing the weekend personal finance pages.

One even later arrival – three weeks after the Autumn Statement – was an HMRC bulletin on the fuel benefit charge for company cars in 2023/24. For some years the basis has been an increase in line with September annual CPI inflation (published in mid-October), so there was no explicit reason for HMRC’s procrastination. The number that was eventually revealed was the current figure, increased by 10.1%, as had been expected.

That means for 2023/24 if you have ‘free’ fuel, its taxable value will be assessed by multiplying £27,800 by your car’s percentage scale charge. For example, if you have a petrol-engine car with CO2 emissions of 130–134 g/km, your scale charge is 31% and £8,618 (£27,800 x 31%) will be added to your income for tax purposes. In terms of hard cash, that is an extra £3,447 going to the Exchequer if you are a 40% taxpayer.

At this point you are probably wondering how far £3,447 of petrol would take you. Assume a price of £1.60 a litre and 40 miles a gallon and the answer is about 19,000 miles. In 2019, before the pandemic disrupted travel, the average car covered 7,400 miles a year. If that figure still applies – and it is probably less because of increased working from home – then the ‘free’ fuel break-even point is more than 250% of typical use.

Not all benefits are so harshly taxed – electric cars can be an attractive option – but the large cost of ‘free’ fuel is a reminder that when it comes to anything financial, ‘free’ is a word to be treated with great caution.

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax advice.

Source: DWP, HMRC, OBR.

The new state pension, payable to eligible individuals who reached their State Pension age after 5 April 2016, will rise by 10.1% to £203.85 a week in April 2023 – that is £10,600 a year. The increase is once again in line with the Triple Lock, which uprates the main state pensions by the greatest of:

·    consumer price index (CPI) inflation;

·    earnings growth; and

·    2.5%.

Of all three indicators, CPI was the clear winner this time around, as earnings have failed to keep pace with soaring price inflation.

While many other state benefits will also grow by 10.1%, the mirroring of inflation by the DWP is not matched by another government department – HMRC. The personal allowance will stay at £12,570 in April 2023, remaining at its two-year-old frozen level. It was due to start rising again from April 2026, but the Chancellor’s latest Autumn Statement added another two years to that date, meaning the personal allowance will be frozen up to and including 2027/28 – a total freeze of six tax years.

The impact of that lengthy ice age is demonstrated in the chart above. What this shows is the new state pension from when it began in 2016/17 to 2023/24 (orange) and the Office for Budget Responsibility’s (OBR) projections for the level over the following four years (green). The purple element shows the gap between the personal allowance and state pension in each tax year. In 2019/20, the personal allowance was over £3,700 higher than the new state pension.

If – a big if – the OBR’s crystal ball is wholly accurate, then by 2027/28 the difference will be about £360 – less than a tenth as much. The OBR’s estimate only needs to undershoot by 0.8% a year for the new state pension to be larger than the personal allowance in 2027/28. That could cause problems for HMRC, because although the state pension is taxable, it is paid without deduction of tax.

Of course, it may not happen – 2027/28 is well after the next election, for a start. However, it is a reminder both of how the income tax screw is being turned tighter and why income tax planning is becoming ever more important.

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax or benefit advice.

In 2022, most of the world’s major share indices had their worst year since 2008, but the UK’s FTSE 100 was a star performer.

Yes, the table is correct. In the year of three Prime Ministers, four Chancellors, a catastrophic ‘mini-Budget’ and double-digit inflation, the UK stock market was one of the world’s best major market performers, eking out a small gain where most others recorded a loss. The MSCI All Country World Index – a good benchmark for Global plc – fell by 9.7% in sterling terms.

Inevitably, such a surprise result from the UK comes with some important qualifications:

·    The yardstick that shows the UK posting a positive return is the FTSE 100, which only covers the largest 100 UK listed companies. Look at the broadest UK index, the FTSE All-Share, and there was a loss of 3.2%.

·    While the FTSE 100 is an index of companies listed on the London Stock Exchange, it is far from a snapshot of UK plc. About 14% of the index is accounted for by three energy companies – Shell alone accounts for over 9%. The basic resources sector provides just over 9%, albeit its constituents do not have their mines in the UK.

·    The 250 mid-sized companies that form the FTSE 250 and sit below the FTSE 100 are closer to what most people would consider UK plc. As the table shows, this group had a tough 2022 – just what might be expected given the state of the UK economy.

·    While the FTSE 100 outperformed the US and Eurozone, the gap is not so wide when currency performance is considered. Sterling fell 11.2% against the US dollar and 5.4% against the euro.

·    On the plus side, if you had re-invested all the FTSE 100 dividends over the year, your return would have been 4.7%, a reminder that the UK stock market remains a good source of income.

The UK’s winning streak in 2022 – at least in FTSE 100 terms – does not mean you should now ignore investment diversification. After all, the FTSE 100 was way behind the best performing global market of the year. That title, with a jump of over 100% in sterling terms, belonged to a country with over 80% inflation – Turkey.

The value of your investment and any other income from it can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance.

Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

A growing number of taxpayers are being caught by the personal allowance taper, which will be exacerbated by the reduced additional rate tax threshold of £125,140. With many also questioning why the new threshold is not a round number, a short history of tax setting provides the answer.

Seven chancellors ago in 2009, the then occupant of 11 Downing Street, Alistair Darling, had a not uncommon problem. He needed to raise some extra tax. His basic solution was to create a new income tax rate, the additional rate, but to raise enough revenue, the new band’s threshold would have been too close for political comfort to £100,000.

To avoid this problem, the threshold was set at £150,000 and the potential lost tax replaced by tapering out the personal allowance once income exceeded £100,000. The change went through in the Finance Act 2009 but did not take effect until the 2010/11 tax year.

The £150,000 and £100,000 thresholds and taper have remained in place ever since. The taper operates by reducing the available personal allowance by £1 for each £2 of adjusted net income over £100,000. In 2010/11, that meant that the personal allowance (then £6,475) was lost completely once income reached £112,950. The practical effect of the taper was to introduce a tax rate of up to 60% in the band where taper applied (£2 in the taper band of income meant tax was payable on £3).

Fast forward to the Autumn Statement of November 2022 and the new Chancellor, Jeremy Hunt, also alighted on additional rate tax to supply more revenue. His approach was to cut the additional rate threshold in 2023/24 to £125,140. But why not £125,000, as press rumours had suggested?

The answer can be found in Mr Darling’s taper ruse. The personal allowance is now £12,570 (frozen until April 2028), which means that the allowance is not lost until income exceeds £125,140. Had Mr Hunt picked £125,000, the additional rate would have applied to the top £140 of the taper band, producing an effective tax rate of up to 67.5%.

A growing number of taxpayers are being caught by the personal allowance taper. Combined with the reduced additional rate threshold, it will effectively mean that higher rate tax stops at £100,000 from the next tax year. If you are a taper victim, then make sure you seek advice on your options to ease the pain of retaining only 40p in every £1 of income. 

Tax treatment varies according to individual circumstances and is subject to change.

For specialist tax advice, please refer to an accountant or tax specialist.

The Financial Conduct Authority does not regulate tax advice.

The new Chancellor’s Autumn Statement has increased the tax bill for many investors.

In his Autumn Statement, the Chancellor, Jeremy Hunt, said that in making decisions on tax the government followed a broad principle that “we ask those with more to contribute more”. Investors were clearly placed into this category as Mr Hunt:

·    Halved the dividend allowance to £1,000 in 2023/24 and then halved it again to just £500 in the following tax year. The dividend allowance was £5,000 when it was introduced in 2016/17.

·    Cut the capital gains tax (CGT) annual exempt amount from £12,300 to £6,000 in 2023/24 and then halved it to £3,000 in the following tax year. One result of this could be that over 200,000 more people will now have to complete a self-assessment tax returns for the first time.

·    Froze the personal allowance and UK higher rate threshold for another two tax years (to April 2028).

·    Reduced the threshold at which additional rate tax on investment income (and other income, outside Scotland) is charged from £150,000 to £125,140 from 2023/24.

If you are a higher rate taxpayer, then the dividend allowance cuts could cost you £506 a year – assuming you are not pulled into the additional rate – and the CGT cuts up to £1,860 a year.

There are some ways you could mitigate this new investment tax burden:

·    Use your available 2022/23 CGT annual exemption to crystallise gains in this tax year so you have fewer gains going forward.

·    Maximise your ISA contributions (frozen at £20,000 a tax year until April 2026). As ISA investments are free of both income tax and CGT, you might also want to review whether any cash ISAs you hold would be better switched to stocks and shares ISAs.

·    Make the most of independent taxation for married couples and civil partners.

For any guidance on your position and options, please get in touch.

The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.

Past performance is not a reliable indicator of future performance.

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax advice.

Investors do not pay any personal tax on income or gains, but ISAs do pay unrecoverable tax on income from stocks and shares received by the ISA managers.

Stocks and Shares ISAs invest in corporate bonds; stocks and shares and other assets that fluctuate in value.

Why not consider a different kind of gift for your children or grandchildren this Christmas – perhaps one with a financial twist?

According to a prediction made by Hamleys in October, among some of the top bestselling toys this Christmas will be:

·    XShot Skins Last Stand Dart Blaster

·    Play-Doh Ice Cream Cart

·    Peppa Pig Roller Disco.

For those who perhaps would prefer not to wholly invest in plastic for Christmas in 2022, there are other options. As an alternative with greater durability and hopefully a better long-term return on investment, you could consider a financial gift for a child or grandchild. Your options include:

·    Junior ISAs (JISAs) These are very similar to their adult ISA counterparts, so are free of UK income tax and capital gains tax (CGT). The maximum total investment (from all sources) is £9,000 per tax year. JISAs are available to any child under the age of 18 who does not already have a Child Trust Fund.

·    Self-invested personal pension Whereas the funds in a JISA will be available from age 18, pension fund monies will be locked up for much longer – currently to age 55 but for today’s children that could rise to at least age 60. The maximum investment is also smaller at £3,600 a year, but this comes with basic rate tax relief, meaning your maximum outlay is £2,880.

·    Absolute trusts Absolute (or outright) trusts can be used to make investments in unit trusts and open-ended investment funds. The control of the investments lies with the trustees until the child reaches 18 (16 in Scotland) at which point the child, as beneficiary, is entitled to take over. If the gift originates from a parent and the income generated exceeds £100, it is taxable on the parent (to be clear the limit is £100 per parent, per child, per tax year). This rule does not apply to gifts from grandparents (or others) and any CGT is always treated as the child’s.

·    Premium bonds Apart from a somewhat uncompetitive JISA (paying 2.70% variable at the time of writing), premium bonds are the only offering that National Savings and Investments promotes for those under the age of 16. Prizes are tax free (even if capital came from a parent), but the prize rate of 2.2% means that, based on average luck, the children’s accounts offered by some banks and building societies offer a better return.

These options may feel less exciting to unwrap under the Christmas tree, but they also aim to grow with their recipients… so why not do both? We’re not monsters here, we promise, no child wants to wake up to a lecture on compounding returns on Christmas Morning.

The value of investments and pensions and the income they produce can fall as well as rise. You may get back less than you invested.

Past performance is not a reliable indicator of future performance.

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax and trust advice.

Investors do not pay any personal tax on income or gains, but ISAs do pay unrecoverable tax on income from stocks and shares received by the ISA managers.

Stocks and Shares ISAs invest in corporate bonds; stocks and shares and other assets that fluctuate in value.

Investment in a registered pension fund is subject to many restrictions on access and on how the funds can be used.

2022 was an eventful year, giving you good reason to think about your financial planning for 2023.

This year we saw three prime ministers, four chancellors, no formal Budget (even if the Autumn Statement looked remarkably like one), high inflation, rising interest rates and volatile investment markets. At the year end, it therefore makes sense to review the effects of these events on your personal finances and what, if any, actions you should consider to set you in good stead for the next year.

As we head into 2023, ask yourself these questions:

·    Does your life and health cover need to be increased? Double-digit inflation rapidly erodes the value of fixed sums. £10,000 of protection set up two years ago now has less than £9,000 of buying power.

·    What top rate of tax will you pay in 2023/24? The continued freezing of personal allowances and many income tax thresholds, plus the cut in the additional rate threshold, could mean you drift into a higher tax band next tax year. It is worth knowing that early, so you can plan accordingly.

·    What interest are you earning on your cash deposits? Interest rates started 2022 on the floor. The Bank of England has been busy increasing them ever since, but many banks and building societies have been much less zealous in raising the rates they pay to their depositors, particularly on accounts no longer open to new savers. At the time of writing, the top instant access accounts were offering around 2.5%, but some big names were not even paying 0.5%.

·    How did the mix of your investments change over 2022? Although many investment indices fell in 2022, some of the relative changes were surprising. For example, many UK government bond funds suffered larger falls than their UK share fund counterparts. US funds were also often performing better than the Dow Jones Index suggested because the dollar was so strong against the pound. The net result is that your portfolio may need rebalancing.

As ever, if you need help answering these questions – or what actions are required – make sure you seek professional advice.

The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.

Past performance is not a reliable indicator of future performance.

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax advice.