Let’s have a look at some of the key changes announced in Jeremy Hunt’s Spring Budget earlier today.
Pensions
Hunt announced that the pensions lifetime allowance was to be abolished, meaning more people can save unlimited amounts into their private pension without incurring a tax charge.
He also announced an increase in the tax-free yearly allowance for pension contributions, taking it from £40,000 a year to £60,000 a year.
Fuel, Alcohol and Tobacco
The 5 pence cut to fuel duty on petrol and diesel was due to end in April but Hunt has announced a freeze of fuel duty for another year, helping keep down costs for motorists.
Tax on tobacco is set to rise by 2% above the rate of inflation, or for rolling tobacco, 6% above inflation.
Most alcohol duties will be rising in line with inflation as of August, meaning supermarket prices for booze will increase. However, Hunt has also mentioned a draught relief scheme to be implemented from August 2023 which should keep pint prices in pubs down.
Energy
Energy bills for the typical British household were due to rise to £3,000 a year from April but the energy price guarantee has now been extended until the end of June, keeping this figure at £2,500 instead.
Hunt has that the government will invest £20 billion over the next 2 decades into low carbon energy projects.
Nuclear energy will now be classed as environmentally friendly for investment purposes, meaning it will qualify for the same investment incentives as renewable energy.
Hunt has also stated that £63 million will be given to leisure centres to help them cope with rising swimming pool heating costs and investment to become more energy efficient.
Childcare
One of the main highlights of the budget is the expansion in state-funded childcare. Hunt has promised up to 30 hours a week of free childcare for eligible households with children as young as 9 months. This won’t be fully implemented until September 2025 but will be rolled out in stages from April 2024.
Families on universal credit are set to receive childcare up front rather than in arrears. Instead of a cap of £646 per month per child, this will now be increased to a maximum of £951.
Hunt has further announced relaxed rules in England to allow childminders to look after more children.
He’s also increasing the funding paid to nurseries providing free childcare by £204 million from September this year, rising to £288 million next year.
Corporation Tax
Corporation tax will indeed be increasing, taking it from a 19% tax on taxable profits over £250,000, to a 25% tax. However, Hunt has also announced a new policy of full capital expensing over the next 3 years which will allow companies to deduct money invested into new machinery and technology from their profits, helping to reduce their tax liability.
Support for the Vulnerable
Hunt has announced a new system of Universal Support across England and Wales. This is a new voluntary employment scheme for those who are disabled or have health conditions. Up to £4,000 per person will be invested to help support around 50,000 people a year in finding suitable work which caters to their needs.
Hunt has also announced funding of:
£400 million for mental health and skeletal support
£3 million to help those with special needs to enter the workforce
An additional £10 million over the next 2 years to help charities in England who work in suicide prevention
Other Notable Points
-£200 million this year to help local councils in England repair potholes
An extra £11 million in defence budget funding over the next 5 years
by Red Star Wealth
Relevant Life Insurance is a type of life insurance policy tailored towards Directors of Limited Companies who wish to cover themselves or an employee. So, let’s have a look at how it works and the tax benefits that come with it.
Who is Relevant Life Insurance For?
Relevant Life Insurance is an insurance policy for Directors of Limited Companies who want to provide life insurance for an employee and don’t have enough employees to qualify for a group policy.
Relevant Life Insurance is a single-life policy; it covers one employee per policy. For example, you, as the Company Director, could choose to cover yourself through this insurance and pay for it through the company.
Just like with traditional life insurance policies, the price of premiums will depend on the level of cover and the age, health and lifestyle of the employee in question.
If the insured employee dies whilst employed by the company, a cash lump sum will be paid out. You are usually allowed to cover up to 30 times your annual renumeration, but it depends on your age and on your policy. Many policies will also pay-out if the insured person is diagnosed with a terminal illness with less than 12 months to live.
Relevant Life Insurance policies can be taken out by limited companies, charities and partnerships but sole traders are currently unable to access this type of policy.
Relevant Life Insurance vs Group Life Insurance
Relevant Life Insurance essentially acts as a death in service benefit for smaller businesses instead of taking out a group life scheme.
It’s best suited to companies which are too small to consider these group protection schemes or who only want to provide cover to one employee, such as to the Director. Group schemes often work out cheaper for larger groups so if your company is smaller, you may not qualify for this or it may work out too expensive.
Tax Efficiency: Corporation Tax, Income Tax and National Insurance
As Director of a Limited Company, you will not pay for a Relevant Life Insurance policy out of your own pocket. Instead, it is paid for by the company and so is classed as a tax-deductible business expense. Therefore, it is subtracted from company profits, in turn reducing your corporation tax liability.
Relevant Life Insurance is not classed as a P11D benefit in kind, meaning that Directors don’t have to pay extra income tax or make national insurance contributions on the value of the premiums. Premiums therefore qualify for income tax relief, national insurance relief and corporation tax relief. According to Legal and General, this means you could see your premiums reduced by up to 49% of a typical life insurance policy as a higher rate taxpayer, or up to 40% as a basic rate taxpayer.
No Impact to the Pensions Lifetime Limit
If you build up pension savings more than the lifetime allowance (currently set at £1,073,100*) you incur a tax charge.
Unlike with group schemes, Relevant Life Insurance does not fall under pensions legislation so it does not count towards the pension lifetime allowance. Therefore, this type of policy may be helpful for high earning directors or other employees who have reached, or are likely to reach, their lifetime allowance.
In contrast, lump sum payments under a group policy do contribute to the lifetime allowance and payments to the estate exceeding this limit would face tax charges of 55%.
Avoiding Inheritance Tax
If taking out a Relevant Life Insurance policy, you should establish a specialist trust to pay the benefit into.
This helps to avoid potential tax issues with the claim as the pay-out will not enter the company’s or the deceased’s estate, keeping it free from inheritance tax and avoiding probate delays.
*This figure is expected to be increased to £1.8m in the budget on March 15, 2023
If you have any questions regarding Relevant Life Insurance, or would like a quotation, please contact Red Star Wealth’s Managing Director Kristen Cunliffe via email kristen@redstarwealth.co.uk and she will be happy to help
by Red Star Wealth
If you’re feeling a bit dizzy from all the U-turns in economic policy under Truss’ leadership recently, we can’t blame you! It’s difficult to keep up with it all at the moment, so we are here to help. Let’s have a look at what’s been going on…
Goodbye Kwarteng, Hello Hunt
Jeremy Hunt has recently replaced Kwasi Kwarteng as Chancellor, bringing with him even more economic changes.
Liz Truss has stated that Government spending will low grow less rapidly than she planned, meaning lots of U-turns on her previous plans.
The Medium-Term Fiscal Plan
On 26th September 2022, Kwarteng revealed that his Medium-Term Fiscal Plan would be presented on 23rd November.
This announcement is still in place, except now it’s happening earlier than planned and being delivered by a different man (Hunt). The Treasury announced on 10th October that the Chancellor would bring forward the announcement of this plan to the 31st October as opposed to 23rd November.
Triple Lock Confusion
The triple lock means that the state pension rises each year in line with either inflation, average earnings, or 2.5%, depending on which figure is the highest.
On 17th October, Hunt indicated that the Government was considering shelving the triple lock on pensions. However, two days later during Prime Minister’s Questions, Truss confirmed that the triple lock was there to stay.
“Firstly, we will reverse almost all the tax measures announced in the Growth Plan three weeks ago that have not started Parliamentary legislation” -Jeremy Hunt
Income Tax U-Turns
Hunt has announced that he’s reversing the proposed 1% cut in the basic rate of income tax announced in Kwarteng’s mini-budget. Instead, the basic rate will remain at 20%.
He’s also announced that the Government will not proceed with abolishing the 45% additional rate of income tax, as was previously announced in the mini-budget.
Alcohol Duty Freeze U-Turn
Hunt has also abandoned Kwarteng’s plans of freezing alcohol duty rates for a year, commencing 1st February 2023. This freeze is no longer going ahead, which is estimated to save the Treasury £600 million a year.
Corporation Tax Double U-Turn
Kwarteng announced in his mini-budget that the previously planned rise in corporation tax due to come into force in April 2023 would no longer go ahead.
Since his replacement, Truss has stated that the rise will go ahead next year after all, rising from 19% to 25%.
Energy Bill Price Cap
During Prime Minister’s questions on 19th October, Truss seemed to lean heavily on her energy bill price cap as a supportive measure for those most vulnerable. However, this energy bill support to ensure that the typical household’s average bill doesn’t exceed £2,500 is only to last until April 2023. The support is only actually in place for half a year.
Stamp Duty Land Tax
One remaining element of Kwarteng’s mini-budget is the changes to Stamp Duty Land Tax. The nil-rate tax threshold will stay at the increased £250,000, and £425,000 for First-Time Buyers.
So, that’s all of the recent changes summed up… for now! Things may be due to change again with Truss’ resignation, so stay tuned.
by Red Star Wealth
Last Friday, on 22nd September 2022, Kwasi Kwarteng, the Chancellor of the Exchequer, announced in his mini-budget statement a set of economic policies which have been the subject of much discussion. Read on for an overview of some of the changes he’s made.
National Insurance and the Health and Social Care Levy
Since 6th April 2022, workers and employees have been paying an extra 1.25% National Insurance, taking the rate up to 13.25%. This increase was due to be replaced by the Health and Social Care Levy (a 1.25% levy on top of a 12% National Insurance rate).
Details of the Health and Social Care Levy were announced by Boris Johnson on 7th September 2021 and it was to be introduced by April 2023. The levy was for increased health care spending to deal with the backlog of patients awaiting treatment on the NHS.
Some of the levy was to be channelled into the social care system due to our ageing population, effects from the pandemic, staff shortages and lack of government spending.
The levy was to be calculated the same as National Insurance but would’ve also been paid by those at state pension age.
The levy was expected to raise around £13billion for health and social care. Despite cancelling the proposed levy, the Chancellor has claimed that funding for health and social care services will remain at the same level as if the levy was actually in place. I guess we will have to see…
The good news is that Kwarteng, along with cancelling the levy, is reversing the 1.25% rise in national insurance come 6th November 2022. The aim of this is to reduce workers’ and businesses’ tax burden and encourage growth to stimulate the economy.
Income Tax
As well as the decrease in income tax, Kwarteng announced some changes to income tax. The basic rate of income tax will decrease from 20% to 19% as of April 2023 (a year earlier than planned). Additionally, the additional rate of tax (set at 45% and applied to incomes above £150,000) is to be abolished.
In the short term, it seems as though most people will be paying less tax. However, former chancellor Rishi Sunak announced in 2021 that the personal allowance and higher rate threshold would be frozen from the 2022-23 tax year until the 2025-26 tax year.
This freeze will essentially offset the tax reduction announced by Kwarteng for most ordinary people.
It is the high earners who will fare the best. The rich, as always, seem to be getting richer. Abolishing the additional rate of income tax means that the highest earners, including millionaires, are in the same tax band as anyone earning over £50,271.
Corporation Tax
The Chancellor has cancelled the proposed rise in Corporation Tax. The tax was to increase to 25% starting April 2023 for firms which make over £250,000 profit. However, this will now be remaining at 19% for all firms, regardless of their profit.
Stamp Duty Land Tax (SDLT)
The 0% SDLT band has been doubled from £125,000 to £250,000. The idea is that cutting SDLT will promote residential property investment and spending on household goods.
The threshold before paying SDLT has also been increased for first-time buyers from £300,000 to £425,000, making it easier to get your foot on the housing ladder. The average house price for first-time buyers in the UK in 2021 was around £264,000, but if you’re spending more than this, the increased threshold is certainly handy.
Universal Credit
Households on universal credit may find it more difficult to claim. Those earning less than the equivalent of around 15 hours a week at National Living Wage will have to regularly meet with their work coach. If failing to do so, they risk a reduction in their benefits
There have certainly been mixed reactions to Kwarteng’s mini-budget, but how you feel about it is entirely up to you.
