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Autumn statement 2022: tax raising but not tax rises

18 November 2022

Barely eight weeks on from the not so mini “mini-budget” which brought about disastrous impacts to the economy through the announcement of unfunded tax cuts of £45bn, the new Chancellor, Jeremy Hunt, has completely reversed the direction of travel for the Conservative party.

taxes

Swaati Osborne, Senior Wealth Planner

The Chancellor has delivered a package estimated to raise £55bn in order to restore the UK’s reputation and build our way towards firming up the country’s balance sheet in the search of “sound money”. They expect that this will be delivered through a fairly equal balance of tax raising measures (45%) and spending cuts (55%), whilst also promising to protect the vulnerable (through the circa 10% inflationary increases to state benefits, state pension and the living wage). Those who earn more will be expected to help more by the freezing of tax thresholds and reduction of the threshold at which the top rate of income tax is levied.

Summary of the key changes to personal taxation that were announced:

  • The top rate of 45% income tax threshold will be reduced from £150,000 to £125,140 from April 2023.
  • Income tax personal allowance and higher rate thresholds will now be frozen until April 2028 (previously frozen until April 2026).
  • The national insurance and inheritance tax thresholds are frozen until April 2028.
  • Capital Gains annual exempt amount will be reduced from £12,300 to £6,000 from April 2023 and to £3,000 from April 2024.
  • Dividend allowance will be reduced from £2,000 to £1,000 from April 2023 and to £500 from April 2024.
  • The previously announced reductions in Stamp Duty Land Tax will now be a temporary measure and will be maintained until 31 March 2025 (this was an increase in the nil rate threshold to £250,000 for all purchasers of residential property and for first time buyers of £425,000).

With the further freezing of the various tax thresholds until April 2028, which was first introduced by now Prime Minister Rishi Sunak back in 2021, along with a reduction in the higher rate income tax threshold from £150,000 to £125,140, even more people will be pulled into paying tax, or paying it at higher rates, than before. Against a backdrop of high inflation and rising interest rates where disposable income is already strained, this will only add more pressure to millions of households. Indeed, it is estimated that these changes will create an additional 3.2 million new taxpayers and result in 2.6 million more people paying higher rate tax.

Whilst the changes announced are significant, speculation relating to a change in capital gains tax rates (bringing them into line with income tax rates), changes to pension savings tax relief and potential changes to inheritance tax, proved unfounded. While there have been changes to the capital gains exemption and a reduction in the dividend allowance, this statement did not make any further material changes in this regard.

For those who can afford to, and given the lack of changes in these areas in this statement, it makes more sense than ever to make use of the sensible allowances and reliefs still available - from funding pension contributions where possible, to utilising ISA allowances.

 

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