In yesterday’s Autumn Statement, Chancellor Jeremy Hunt delivered a package of tax rises and spending cuts designed to repair Britain’s battered public finances.Promising to protect the vulnerable and concentrate tax rises on high-earning individuals, the chancellor warned the UK economy had already entered recession, and that things would get worse before they improved.
Here is a summary of the key measures likely to affect your own personal finances:
Freeze to income tax thresholds extended
The freeze on the personal allowance, and thresholds for income tax and National Insurance will be extended to April 2028. The freeze on these taxes had been due to lift in 2025-26. With thresholds failing to rise in line with salaries, a significant number of people may end up in a higher tax band by the end of this period.
The inheritance tax (IHT) threshold has also been frozen. The ‘nil-rate band’ – the amount that can be passed on before IHT is due at a rate of 40% – will stay at its current rate of £325,000 until April 2028.
Hunt says, even with this freeze, ‘we’ll still have the most generous set of tax free allowances of any G7 country’.
Additional-rate tax threshold reduced
The additional-rate income tax threshold will reduce from £150,000 to £125,140 from April 2023. It’s estimated around 250,000 taxpayers will be pushed into this higher tax band, paying 45% on any income above the new limit. This would mean anyone earning £150,000 or more could expect to pay £1,200 more per year in income tax.
State pension triple lock reinstated
The Chancellor confirmed pensioners would receive a 10.1% increase, in line September’s inflation – a formula outlined in the state pension triple-lock guarantee. This means that payments are increased each year by whichever rate is the highest of either average earnings, the Consumer Prices Index (CPI) inflation, or 2.5%. In addition, those claiming working-age benefits (such as Universal Credit) and pension credit will see payments increase by 10.1%.
Cuts to dividend tax and capital gains tax allowances
Electric Vehicle Excise Duty
The Chancellor announced that vehicle excise duty will be rolled out to apply to electric vehicles for the first time, a move that will come into force from April 2025. As electric car ownership becomes more popular, the government has reportedly been missing out on the revenue generated from the road tax and fuel duty that are currently only paid by petrol and diesel car owners.
Other Key Points
The stamp duty cuts announced in September’s mini-budget will remain in place until 31 March 2025, and will then be removed. Until this date, first-time buyers won’t need to pay stamp duty on the first £425,000 of the property they buy (up from £300,000); existing homeowners won’t have to pay on the first £250,000 (up from £125,000).The National Living Wage, currently £9.50 for workers over 23, will also rise by just under £1 to £10.42 from April 2023.
Upcoming changes to the Dividend Allowance and the Capital Gains Tax Annual Exempt Amount, as well as Income Tax on the highest earners will all have a significant impact on many of our clients.Many of you with capital that you want to preserve for the benefit of yourselves and your family might now need extra support to understand how today’s changes impact your personal financial situation. We want to remind you that our team is here to help you navigate the UK’s labyrinthine tax system and help minimise your exposure to tax.
For more information or to review your options, please contact us.
Capital at risk. Sources: Which? and AJBell InvestCentre