On 17th November we had Jeremy Hunt’s first autumn statement. After the infamous ‘mini budget’ delivered by Liz Truss and Kwasi Kwarteng, this was a very different offering.
The backdrop for this autumn statement is inflation sitting at a 40 year high, and predictions of a prolonged recession. There was a need to deliver confidence to the markets through proof that government could deliver higher tax and lower spending to combat the budget deficit.
The main points are…
Income Tax
There were various freezes of Income Tax limits. This includes the personal allowance, income tax and national insurance thresholds. This means, as income increases, people have more chance of drifting into higher tax brackets.
At the same time, the chancellor reduced the level at which additional rate tax (45%) kicks in from £150,000 to £125,140 from April 2023. This will mean additional tax of just over £1,200 per annum for anyone earning over £150,000.
There is also a hit to small business owners and those who receive their income via dividends. The dividend allowance is being cut from £2,000 per annum to £1,000 per annum from April 2023. It will then be cut again to £500 per annum from April 2024. This (alongside corporation tax changes) brings the tax efficient extraction of profit even higher up the priority list for small and medium business owners.
Capital Gains Tax (CGT)
The capital gains allowance will reduce from £12,600 to £6,000 from April 2023; then to £3,000 from April 2024.
This has implications for anyone looking to dispose of investments and/or property.
Inheritance Tax (IHT)
The IHT nil rate band will remain at £325,000 until April 2028. This will mean that more estates will become taxable, assuming property and investment values continue to grow.
Lifetime Allowance Tax (LTA)
Again, this is frozen until April 2027 at £1,073,100.
This will mean more pensions are likely to be caught by this tax as assets grow and defined benefit schemes escalate. This is especially dangerous for those with large defined benefits schemes as these will tend to increase quicker with high inflation (depending on their escalation rates).
Stamp Duty Land Tax (SDLT)
The SDLT cuts announced on 23 September 2022 by Kwasi, are now temporary and will only last until April 2025. At this point they will revert to the previous levels.
State Pension & Benefits
Finally some good news! The government are increasing benefits in line with inflation. This means the state pension will be increased by 10.1% from April 2023.
They also announced a review of state pension age due in early 2023. Watch this space for potential changes again!
Other bits
Energy Price Guarantee
Average energy bills will be capped at £2,500 until April 2023. From April 2023 until April 2024, this cap will increase to £3,000.
Energy profits levy
Until the end of March 2028, oil and gas companies will pay a windfall tax of 35% on profits.
Electric cars
From April 2025, electric vehicles will pay vehicle excise duty in the same way as petrol and diesel cars.
National living wage
The national living wage will rise to £10.42 per hour from April 2023.
Corporation tax
As confirmed in previous statements, the main rate of corporation tax will be rising to 25% from April 2023.
All in all, this feels like an attempt to ‘balance the books’. We appear to have had a perfect storm of Covid, war in Ukraine, high inflation and some poor decisions that have damaged the public finances. This statement is an attempt to restore confidence and move public finances in the right direction. Time will tell if it works.
We will be working with our clients to establish how best to navigate the changes. If you aren’t a client, please get in contact if this is something you are interested in.
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