Having taken the decision to scrap the previous mini budget released in September, Chancellor of the Exchequer Jeremy Hunt released the new autumn budget – officially called the Autumn Statement 2022 – with key aims to promote stability, growth, and public services.
This budget comes at a time of significant economic challenges on a global level. Inflation remains high, with central banks responding by raising interest rates, and the war between Russia and Ukraine shows no sign of a resolution in the short term. This is against the backdrop of high government debt incurred from the pandemic and ongoing energy crisis.
Mr Hunt’s statement focused on stability that relies on fiscal sustainability – with plans to ensure the national debt falls over the medium term. The reduced debt should allow for more significant investment in public services, support the Bank of England’s efforts to curb inflation, and give greater confidence to businesses as they continue to invest and grow in the UK.
Income tax, National Insurance Contributions and other relevant tax rates
The income tax personal allowance, higher rate threshold, National Insurance Contributions (NIC), upper earning limit and upper profits limit were already frozen at 2021 levels until April 2026 – this will now be maintained for an additional two years, until April 2028.
Freezing allowances and thresholds is often referred to as ‘tax by stealth’ since it increases taxation without putting up tax rates. Thousands more people will now pay more tax to the Treasury as wages increase alongside inflation.
The NIC threshold was raised from £9,880 to £12,570 in July, and the Social Care Levy (a 1.25% tax to help tackle NHS waiting lists and aid health care) has now been reversed.
As previously confirmed, from April 2023 corporation tax will increase to 25% for businesses with over £250k in profits. Although this is one of the more significant U-turns from the September budget, 25% is still the lowest rate among all other G7 countries, keeping the UK competitive.
Additional tax rate threshold, dividend allowance and capital gains
The autumn budget states that “the fairest way to restore the public finances is to ask everyone to contribute a little, with those on the highest incomes and those making the highest profits paying a larger share”.
With this principle in mind, the additional rate tax threshold will be reduced from £150,000 to £125,140 as of April 6, 2023.
The Dividend Allowance will be reduced by half – from £2,000 per tax year to £1,000 from April 2023 – and halved again to £500 in 2024.
The Capital Gains Tax Annual Exempt amount will be more than halved – from £12,300 to £6,000 on April 6, 2023 – and similarly reduced again to £3,000 in April 2024. Selling investments before the 2023 tax year would allow you to take advantage of the higher threshold.
Prevention of capital gains tax avoidance
In the 2023 Spring Finance Bill, the government will introduce legislation to address tax avoidance linked to capital gains – shares and securities in a non-UK company acquired in exchange for securities in a UK close company will be deemed to be located in the UK.
This is likely to affect those with a material interest in both the UK and the non-UK company and where the exchange is carried out on or after November 17, 2022.
The cuts in Stamp Duty Land Tax announced in September increased the threshold from £125,000 to £250,000 for residential property purchases in England, Wales and Northern Ireland. The threshold was also increased to £425,000 for first-time buyers, but these changes have now been declared temporary – due to end on March 31, 2025.
The Annual Charge for Enveloped Dwellings (ATED) will be uplifted by 10.1% for the 2023-24 charging period. ATED is an annual tax typically paid by companies that own UK residential property with a value greater than £500,000.
The inheritance tax (IHT) thresholds will also remain frozen for a further two years until April 2028. The general inheritance tax nil rate band remains at £325,000 (unchanged since 2009) and residential nil rate band at £175,000. Again, this will result in more families getting caught in the IHT net and losing more of their inheritance to tax.
With a new Prime Minister, new Chancellor, and a fresh budget designed to tackle the various economic challenges, hopefully these tough measures will achieve the growth and stability the government is aiming for. It will, however, undoubtedly be a difficult winter for many.
With regards taxation, even if tax rates do not go up over the coming years, the fact that so many allowances and thresholds are frozen will have long-term implications. Getting reliable financial advice is more important than ever.
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.
Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com
Dan Henderson is a Partner of Blevins Franks in Portugal. A highly experienced financial adviser, he holds the Diploma in Financial Planning and advanced qualifications in pensions and investment planning from the Chartered Insurance Institute (CII). | www.blevinsfranks.com