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Spring Statement 2022: At a glance

28 March 2022

4 minute read

We give you the lowdown on how the Spring Statement will impact your income, savings and investments.

The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances.

What you’ll learn:

  • What the Budget means for your tax bills
  • How the new measures will impact your savings and investments
  • Why planning ahead and using allowances is crucial.

Amid mounting pressure on the Government to ease the cost-of-living crisis, the Chancellor set out targeted support against a challenging and economic and political outlook.

Rishi Sunak conveyed the government focus on the need to repay Treasury debt from the pandemic.

On the day of the mini-Budget, the Office for Budget Responsibility revealed its forecast for the UK economy. It said it is to grow by 3.8% this year1, a sharp cut from its previous prediction of 6.0%.

Official figures2 also revealed that inflation for February was at 6.2% - a 30-year high. The Office for Budget Responsibility said inflation would peak at 8.7% at the end of the year and average 7.4% for 20223.

Here are the key takeaways from the Spring Statement:

Taxes

National Insurance

Mr Sunak announced that from July the threshold for paying National Insurance will be aligned with the Personal Allowance at £12,570. This increases the minimum threshold by £3,000 per year and will save lower income earners up to £3303 per year.

Despite calls to reverse the planned National Insurance rate hike it will go ahead - rising 1.25 percentage points in April as part of the funding for health and social care.

Income Tax

From April 2024, basic rate income tax will drop from 20% to 19%.

Meanwhile, the personal allowance at £12,570 and the higher rate income tax threshold at £50,270 will be frozen for four years, which is now set to have a larger impact, given the rise in expected inflation over this period.

Capital Gains Tax

Capital Gains Tax (CGT) allowance will remain at its current level of £12,300 – again until April 2026.

Inheritance Tax (IHT)

IHT thresholds remain unchanged. The nil-rate band has been frozen at £325,000 since 2009/10, so IHT has been increasing in real terms over time.

Pensions

The pensions Lifetime Allowance (LTA) is frozen at its current level of £1,073,100 until April 2026.

Expectations from the Office for Budget Responsibility that the CPI inflation rate will average 7.4%3 this year will further erode the real value of the LTA.

In 2024 when the basic rate of income tax is cut from 20% to 19% it will impact the tax relief on pension contributions.

A reduction in the basic rate of income tax means that people will get lower tax relief on their pension contribution.

Savings and investments

The annual ISA allowances were unchanged at £20,000 for the 2022/23 tax year and £9,000 for Junior ISAs.

Spending

Fuel duty

Mr Sunak announced a temporary 12 month cut to duty on petrol and diesel of 5p per litre.

The Treasury said the fuel duty cut was worth £2.4billion3 and means a one-car family will save £100 on average over the next 12 months.

Energy bills

VAT on green home improvements including solar, heat pumps and insulation has been removed. It was previously charged at 5%. This could be popular since turning to eco-friendly solutions could be the answer to combat rising energy costs for households.

Homeowners will pay 0% VAT on energy saving home renovations over the next five years.

What action should I take?

Investments

It’s more important than ever to take steps to reduce the impact of inflation, using this as an opportunity to review financial plans and ensure you are making full use of all available tax allowances to protect as much of your wealth as possible.

Pensions: The cut in basic rate tax relief (from 20% to 19%) on pension contributions won't affect earners on the higher rates of income tax but for lower earners it means that to get the same retirement income, people will have to pay a little bit more into their pensions.

Savers paying basic rate income tax may want to think about putting more into their pensions over the next couple of years to make the most of the current 20% tax relief.

And regardless of tax bracket, don’t forget about the unique opportunity to carry forward any unused annual allowance (£40,000) from the previous three tax years, as long as it doesn’t exceed your earnings in the current tax year.

Taxes

Think about inheritance tax planning sooner rather than later. Investing tax-efficiently and considering options such as gifting could ensure that more of your assets are passed on to family members or charitable causes.

Financial planning

It pays to make provisions for your future sooner rather than later. It’s never too early to take control of your finances.

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The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances.

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