What the Chancellor’s Growth Plan means for you

The Chancellor has delivered his Growth Plan 2022 to Parliament today. What does it mean for you?

Let's be clear, the Chancellor's statement today was not a Budget, but a 'Growth Plan'. And because it wasn't a Budget, the Office for Budget Responsibility (OBR) was not required to carry out its routine detailed assessments and projections.

That said, some of the main changes announced today were well trailed ahead, as is often the case before Budgets, although there were several surprises.

Of course, the significant unit price cap on energy costs for individuals and businesses was referred to, but the detail had already been announced. The Prime Minister had been very vocal throughout her leadership campaign about her aspiration to:

• reverse the April 2022 National Insurance Contribution (NIC) increases and
• to stop the proposed 2023 Corporation Tax Increase - leaving the tax at its current level.

Both of these changes have now been formally confirmed.

In the week leading up to the announcement, rumours also started to build around:

• Potentially bringing forward the 2024 planned reduction of 1% in the basic rate of income tax.
• A VAT cut - generally, or for energy bills or targeted explicitly at hospitality.
• A reduction in Stamp Duty Land Tax (SDLT) to boost the housing sector - a sector negatively affected by the Bank of England's recent ½% increase in Base Rate.
• Business focussed tax incentives to encourage investment - including new Investment Zones.
• And very close to the time of the statement itself, an indication that the IR35/off-payroll working rules may be reviewed.

And when the Chancellor delivered the statement at 9.30 for 30 minutes, it became clear that we got some pretty radical changes proposed for something that wasn't a Budget. Arguably these tax changes are more material than have been announced in past "full Budgets".

So what did we get?

Income Tax

• Additional Rate Income Tax (45%) will be abolished from 2023/24 tax year (not applicable in Scotland).
• Basic Rate Income Tax cut to 19% from 2023/24 tax year. This brings forward an already announced change (not applicable in Scotland).
• Gift aid and pensions tax relief (Relief at source schemes) will remain at 20% until 2024/25.

The planned National Insurance 1.25% increase for employees, employers, and the self-employed will be reversed from 06/11/2022.

The proposed Health and Social Care Levy, which was due to take effect from April 2023, will be scrapped. The government has confirmed the funding will continue as if the levy was in place.

Corporation Tax planned increases scrapped, staying at 19%.

Stamp Duty Land Tax

• No stamp duty to be paid on the first £250,000 - up from £125,000.
• First-time buyers no tax on the first £425,000 - up from £300,000.
• First-time buyers can claim relief for property values up to £625,000.

Other Tax Incentives:

• The Annual Investment Allowance for businesses will be continued, and the cap restored to £1m.
• Up to 40 new Investment Zones around the country will be designated with material commercial and tax benefits to encourage regional investment.

Key implications for financial planning strategy

• The cancelling of the health and social care levy moves funding back to general taxation, which may result in individuals relying more on their own means rather than the state.
• Removal of Additional Rate Tax and lowering of Income Tax will lead some individuals to bring forward some decisions to secure higher tax rates or rates of relief. Tax relief on pension contributions, for example, will reduce with effect 2023/24 and may result in accelerated contributions this tax year.
• The reversal of the NIC and dividend tax increases will impact decision-making about how to take money from your private company, i.e. by dividend or salary.
• The removal of the additional rate of tax and the additional tax on dividends will need to be factored into tax wrapper selection for investments beyond pensions and ISAs.
• Capital Gains tax is still significantly lower than Income Tax and can favour capital growth tax wrappers. Tax wrapper choice requires considering several factors, and advice is strongly recommended.
• The reduction in Stamp Duty is aimed at stimulating the housing market. However, this should be put in the context of higher interest rates which have the reverse effect.
• The announcement on the IR35 rules, reversing previous unpopular changes, will result in many contractors reviewing their status.

The Prime Minister and the Chancellor are committed to continuing to reduce taxes through this parliament. We will undoubtedly have further change to understand and digest when we have a full Budget (with supporting OBR analysis) later in the year - November / December.

During these economically challenging times, the value of financial and non-financial advice remains relevant. It's arguably even more important to ensure that your financial plan and day-to-day finances are as tax efficient as possible. Tax efficiency remains a pillar of a sound financial plan. Accessing professional financial advice to help you navigate the plethora of change should be seriously considered, helping you achieve your goals and aspirations.

The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is generally dependent on individual circumstances.