The turbulent economic times have continued into winter, but the government are attempting to restore calm as efficiently as possible. The recent Autumn Statement from Jeremy Hunt was geared towards calming markets and resetting public finances through a series of tax rises. These are to be achieved through cuts as well as freezes to allowances.
He had already reversed many of his predecessor’s announcements from September’s Mini Budget, but he has gone further with cutting the Capital Gains Tax (CGT) annual exemption, lowering the additional rate tax threshold and extended a freeze on other allowances by a further two years.
Here is an overview of the key points from November’s Autumn Statement:
Income tax
Rates – the basic, higher and additional rates at 20%, 40% and 45% remain for 2023/24. The Mini Budget announced an abolition of the additional rate – this will NOT happen.
The Scottish government will be announcing their own Budget on December 15th where their rates will be discussed.
Allowances and thresholds – the threshold for when the additional rate of tax will be paid is being cut from £150,000 to £125,140 from April 6th, 2023. In real terms, this means that those already paying the additional rate will pay an extra £1,243 in 2023/24. It is forecasted that approximately 250,000 individuals will pay extra tax as a result of the change.
Personal allowance remains at £12,570 and the basic rate band upper limit remains at £37,700 – this freeze has been extended to April 2028. As such, those entitled to a full personal allowance have a threshold of £50,270 before needing to pay the higher rate of tax.
Dividends – dividend allowance is being cut by 50%, halved from £2,000 to £1,000 for 2023/24. In 2024/25, it will be halved again to £500. If dividend income exceeds these new thresholds when it hadn’t previously, a tax return will need to be completed. The increase of 1.25% introduced in 2022/23 will not be reversed, meaning the dividend tax rates for basic, higher and additional rate taxpayers remains at 8.75%, 33.75% and 39.35% respectively for this tax year and next.
Pensions
No changes were announced to pension tax relief. However, the changes to the additional tax rate will mean that more high earners will benefit from the tax relief at 45% on any pension contributions. Pension savings might also become more attractive to those who could lose out on child benefit or their personal allowance as a result of wage inflation.
The State Pension triple lock has been confirmed, guaranteeing the 10.1% CPI-based increase due in April 2023. There will be the same level of increase to the Pension Credit also.
State Pension age is under review with findings to be announced in early 2023.
Lifetime allowance had no announcements so is expected to remain fixed at £1,073,100 until April 2026.
National Insurance
An increase destined to fund reforms in social care has been scrapped. The additional 1.25% added this tax year has been removed from November 2022.
The thresholds at which both employed and self-employed people start to pay NI are to be kept in line with the personal allowance of £12,570. This change was introduced in July 2022 and remains fixed.
Corporation tax
The planned increase in Corporation Tax to 25% will still go ahead in April 2023. However, there will be a reintroduction of tapering relief on companies with profits of £50,000 to £250,000 so they pay less than the main rate. Also, companies with profits lower than £50,000 will continue to pay the lower rate of 19%.
Inheritance Tax
The nil rate band (NRB) of £325,000 and residence nil rate band (RNRB) of £175,000 were frozen which has been extended for an additional two years until April 2028.
Capital Gains Tax (CGT)
The annual CGT exemption will be cut from £12,300 to £6,000 from April 2023 and cut again to £3,000 from April 2024. As a result, it is estimated that 235,000 more individuals will need to complete a self-assessment return for the tax year 2023/24.
The rates of CGT will not change, remaining at 10% and 20% and 18% and 28% for gains on residential property.
The next Budget will be issued in Spring 2023.
NB: This guide is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.
The Financial Conduct Authority does not regulate some aspects of Trust, Tax and Estate Planning.
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