Spring Statement Review
Compared to the sweeping changes announced in the Autumn Budget, Chancellor Rachel Reeves’s Spring Statement was comparatively subdued.
Headlines after the event were dominated by the revised growth projections and the government’s attempts to balance the books, but in this article Michael Owens takes a look at the changes that are likely to impact investors.
Chancellor Rachel Reeves delivered her highly anticipated Spring Statement last week, outlining the government's fiscal approach to managing the UK's economy. It's crucial to understand how these updates will affect both individuals and businesses, as they signal opportunities and challenges that may require strategic planning. Here’s a breakdown of the key announcements from the Chancellor’s statement and how you might be impacted in the coming tax year.
Thresholds frozen
Key thresholds such as the personal allowance of £12,570 and the higher rate threshold of £50,270 will remain frozen until at least 2028. Many commentators predicted the government would announce a continuation of the ‘stealth tax’ (capturing more taxpayers with the fixed thresholds as income continues to rise) past the 2028 end date given by Reeves back in October. However, there was no mention of thresholds at all in the Spring Statement.
Other key thresholds remaining fixed include the capital gains exemption of £3,000 (reduced from £12,300 3 years ago) and the Inheritance Tax Nil Rate bands of £325,000.
High Income Child Benefit Charge (HICBC) to be paid through PAYE
High earning parents will no longer need to complete a self-assessment to pay the High Income Child Benefit Charge (HICBC). The charge is applied when a parent crosses the £60,000 income mark. Under the current rules, you must register for self-assessment and fill in a tax return each year and pay what you owe. From the summer, parents will be able to report their family’s child benefit payments through a new digital service and pay the charge directly through changes to their PAYE tax code.
It's important to note that whether a parent is liable to pay the HICBC is based on their adjusted net income which can be reduced through making pension contributions and gift-aid donations.
ISA Allowance
Leading up to the statement, much of the talk centred on potential changes to the ISA allowance with a widely predicted reduction for Cash ISAs down to £4,000. The current rules allow an individual to subscribe to one Cash ISA and one Stocks and Shares ISA up to the maximum £20,000 allowance each tax year. No official changes to the allowances were made but the government said it is planning to reform the structure of ISAs to “get the balance right” between cash and equities.
Climate Change Levy reform
The government committed to removing Climate Change Levy (CCL) costs from electricity used in electrolysis to produce hydrogen [1]. Under current rules, businesses producing hydrogen through electrolysis – where electricity is used to split water into hydrogen and oxygen – face additional costs due to the Climate Change Levy (CCL).
This will support the growth of low carbon electrolytic hydrogen production seen as a crucial tool in de-carbonising heavy industry and transport.
Summary
Headroom against the Chancellor’s fiscal rules have been restored following the Spring Statement, but with growth forecasts cut in the short term and retaliatory trade wars seemingly around the corner [2] attention now turns to the Autumn Budget. The think tank ‘Institute for Fiscal Studies’ believes there’s a ‘good chance’ taxes will need to be raised again come the Autumn [3].
Written by Michael Owens
[1] Climate Change Levy: electrolytic hydrogen and energy context - GOV.UK