Taxes, the triple lock and pension tax relief – 3 potential autumn statement changes

The autumn statement will be delivered by Chancellor Jeremy Hunt following the aftermath and subsequent U-turn of the mini-budget set out by his predecessor Kwasi Kwarteng.

We’re still at the rumour and speculation stage, so none of the changes being discussed are nailed on. But some of the potential changes include capital gains tax hikes, benefits and pensions uprating, and changes to pension tax relief. Each come with their own implications.

Here's a look at what could change and what it could mean for you.

This article isn’t personal advice. Unlike the security of cash, investments and any income they produce can fall as well as rise in value, so you could get back less than you invest. If you’re unsure what’s right for your circumstances, ask for financial advice. Tax rules can change, and benefits depend on individual circumstances. Remember, pensions are meant for retirement so you can't normally access your money until age 55, rising to 57 from 2028.

A rise in capital gains tax (CGT) or dividend tax

There’s concern that entrepreneurs will be penalised with the increase in capital gains and dividend tax mooted. But there’s also recognition that asset owners have benefited from a huge upswing in values over recent years, while wage earners have seen their incomes stagnate. Targeted tax breaks should be part and parcel of this new regime, to reward companies investing in productivity upgrades, through re-skilling or automation.

Tinkering with the capital gains tax threshold (currently £12,300) or aligning CGT rates to income tax would only penalise a minority of taxpayers. However, it could reap significant sums for the Treasury.

It would mean investors who hold money in funds or shares outside a pension or an ISA would face a hike on any gains. It would cause a particular headache for anyone who organises their holdings in such a way that income is within tax wrappers like ISAs and capital gains outside them.

At the moment, this protects their investments from the higher rate of tax, but a hike in CGT could reverse this benefit. It might mean some investors will try to hang onto investments for life, rather than pay CGT and instead pass on assets when they die through their Will.

It can actually mean the government receives less in tax because investors hoard assets. The Treasury could try to get around this by announcing higher CGT rates further down the line, in the hope it encourages people to bring sales forward. But after an initial bump, they’d still be left with the same problem.

How to pass on investments when you die

For investors, the threat of this potential rise is a reminder of the value of ISAs in protecting you from ever having to consider CGT or dividend tax. So anyone who hasn’t exploited their ISA allowance to protect these investments could be inspired to do so.

An even bigger shock could be reserved for buy-to-let investors who can’t benefit from tax wrappers, or from realising their stock market investment gains year by year, to take advantage of allowances. If CGT is aligned with interest rates and they sell up, they could be faced with a hefty bill in just one hit. This could discourage them from selling, causing parts of the housing market to potentially seize up.

With house prices already facing a significant correction, if even more potential sellers try and avoid selling at what they perceive as a loss, fresh paralysis could add more uncertainty to a very sensitive market.

For business owners who pay themselves in dividends, this is yet another blow at a time when they’re wrestling with existential threats to their businesses – from runaway energy bills to rising prices and wage bills.

The triple lock and benefits uprating

The debate as to whether these will be uprated with inflation, or face far lower increases alongside wages continues to rage. For anyone who receives a state pension, this is a major concern, especially if they’ve based spending decisions on having this extra income in April.

However, for those who are utterly reliant on the state pension or any other benefits, it would be a terrible blow.

The HL Savings and Resilience Barometer looks at how much cash people will have at the end of the month next summer, assuming the usual uprating. For those on the lowest incomes, the picture is bleak. Among the bottom five deciles – so the lowest-paid half of the country – fewer than one in 100 people will have enough cash left at the end of the month to be considered ‘resilient’.

Without essential uprating of pensions and benefits, millions of people would face an even more impossible challenge in making ends meet.

Pensions tax relief

We wouldn’t want to see any dramatic changes of policy overnight. So if the government wanted to change pensions tax relief, we’d want it to be part of a broad consultation. One that looks at the much broader and more pressing question of how to use government support to properly incentivise people to save for retirement.

Learn more about tax relief

If it did head down the road of a flat rate of relief, particularly at 20%, the Lifetime ISA (LISA) would become more of a key retirement income tool for more people, rather than another way of saving for later life as it is now. If you’re between 18-39, the debate could persuade you to open a LISA, and at least fund it with the bare minimum.

That way, if the future changes make it more attractive for you than a pension, you have the option to keep paying into it until you’re 50 – even if you’re 40 or over when any new rules to pensions tax are announced.

If you save into a LISA instead of a pension, you could miss out on employer contributions, and your entitlement to certain means-tested state benefits could be affected.

There’s also been speculation that freezing the Lifetime Allowance could be extended again. This acts as a stealth tax on sensible savers, and risks putting people off saving what they need for the retirement they want.

To hear more about the autumn statement next week, including what actually changes and what it means for you, sign up to our weekly Editor’s Choice email below. You’ll get a roundup of our latest insights and ideas straight to your inbox every Saturday morning.

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