Jeremy Hunt’s maiden Autumn Statement, delivered on Thursday, 17 November, was designed to provide reassurance to markets on the fiscal prudence of the Exchequer, following weeks of heightened volatility in the wake of Kwasi Kwarteng’s ‘mini budget’.
Sterling fell 0.6% against the US dollar on the day the Chancellor announced his fiscal plans, and UK equity indices also traded lower. However, markets were pricing in a lower peak in central bank interest rates, moving down from an August high of 4.59% to 4.54%.
The key takeaways from the Autumn Statement to directly affect investors are the sequential reduction in the annual Capital Gains tax-free allowance, the reduction in the dividend allowance and the lowering of the highest rate of income tax – the additional rate tax.
Starting with CGT, the Treasury aims to generate more tax receipts from the capital appreciation of investment assets above and beyond a certain threshold – the exemption amount – which stands at £12,300 for private individuals in the current tax year. Under the new fiscal plan, the threshold will fall to £6,000 in April 2023, and then to £3,000 in the tax year 2024-25.
This may result in investors bringing forward plans to realise gains in portfolios, and perhaps seek further methods of diversification in these uncertain times. One of the appeals of our bullion coins is that they are CGT exempt, due to their status as legal tender. They are also popular with investors across the world due to their timeless design and historical importance. You can read more about bullion coins and Capital Gains Tax in our article.
The dividend allowance was brought into the investment sphere in 2016 as a direct replacement of the dividend tax credit system, which was considered by many as an overly complex regime. The dividend allowance will be lowered from £2,000 to £1,000 during the next financial year and will ultimately fall to £500 from April 2024.
Before the Autumn Statement, there was some speculation that a simplification of the tax system was in the offing, including bringing dividend and income tax rates into line. It did not transpire on this occasion, but such plans may further dent the relative attractiveness of equity dividends in the future.
From April 2023, the level at which people will have to pay the highest rate of tax (45%) will fall from £150,000 to £125,140. It’s worth noting that the income tax system is progressive, so the highest rate of tax only applies to the element of a person’s income which exceeds this level. This has the effect of reducing the net yield of an investment portfolio and may encourage some to diversify away from income-bearing assets. Specifically, this dynamic applies where the income is derived from the taxable environment (ie: not in an ISA or SIPP), and where the income is not required to cover living expenses. In addition, an individual’s personal allowance drops £1 for every £2 of income above £100,000 from 6 April 2023, which makes effective taxation even more stringent as a person’s total income exceeds £100,000 for the tax year.
From a UK investor perspective, the reduction in net yield also means there will be less opportunity cost to holding non-income bearing assets, such as gold. This economic theory of opportunity cost is best explained as the potential forgone profit from a missed opportunity. It is this concept that may further encourage investors to diversify away from more market-sensitive assets, namely bonds and equities. Our Gold for Pensions offering has seen a trend in new clients looking for an alternative in view of recent market volatility, whilst a shift in the domestic tax regime, such as those outlined above, further improves the investment case for gold.
 This does not apply to trustees and personal representatives, who are entitled to 50% of a private individual’s CGT exemption amount.
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