The 2022 Autumn Statement
On Thursday the 17th, the new Chancellor Jeremy Hunt outlined the measures taken to attempt to both get the country’s economic engine back up and running, as well as restore the treasuries budget balance. Not an easy task.
To raise revenue, the government has mainly decided to rely on freezing personal allowances, or so called ‘stealth taxes’, to raise the extra revenue needed over the coming years. The effect of these freezes will not be felt immediately, but will get progressively more significant as time goes on, especially if high inflation persists. Perhaps comment could be made on the political nature of these decisions, as they look set to make things more challenging for the next government after the 2024-25 election. As things stand, it looks unlikely that this will be a Conservative one.
As well as frozen allowances for Income Tax, Inheritance Tax, National Insurance and the Lifetime Allowance for pensions, the government is also implementing other revenue raising measures. Most notable to us is the reduction in the CGT personal allowance, which is detailed below.
Income tax
The Chancellor was quick to point out that there are no increases to the headline rates of tax. However, this does not mean that individuals won’t pay more income tax, quite the opposite in fact.
While just a couple of months ago Additional Rate taxpayers may have been celebrating the scrapping of the 45% rate band. This has not only been reversed, but the threshold decreased from £150,000 to £125,140 from April 2023. This is estimated to increase the amount of people paying the additional rate by 50% and will cost those already in the additional rate band an extra £1,243 per year in tax.
While being knocked into a higher rate tax band is never good news, it does have its advantages, new additional rate taxpayers will now be able to claim a higher rate of tax relief for pension contributions. It is worth speaking to an adviser to figure out whether it is worth adjusting your financial plan to take advantage of this.
The personal allowance of £12,570 will remain at the current level until April 2028. This means as wages increase low earners will start to pay income tax, and those already paying tax will pay more than if the personal allowance rose as could be expected.
The freeze on the threshold at which the 40% rate of tax is paid has also been extended by two years – to 2028. The tax-free dividend allowance will be cut to £1,000 from April 2023 then to £500 the following year.
National Insurance
The employment allowance will remain at the current level of £5,000. The main NI thresholds will also be held at the current level until April 2028.
Capital gains tax (CGT)
There is no change to the CGT rates, but the annual exempt amount will be cut from £12,300 to £6,000 in April 2023, and then to £3,000 the following year.
This may have significant ramifications for planning how and when to take income or switch investments. This reduction emphasises the importance of considering the tax wrappers available, such as ISAs, Pensions and Investment Bonds.
Dividends
The dividend allowance is to be halved £1,000 for 2023/24, and halved again to £500 for 2024/25. This is important as many investors will need to complete tax returns if these levels are exceeded.
State Pension
After being abandoned on 2020/21, it has been confirmed that the triple lock for State Pensions will be enforced this year. Those in receipt of the State Pension can expect a 10.1% increase in April 2023.
Other announcements
- The increase in SDLT allowances announced at the mini-Budget will be retained – but only until 31 March 2025.
- Electric Vehicles will no longer be exempt from vehicle excise duty from April 2025.
- The Energy profits levy will increase to 35% from 25% and extended from four years to six years.
- National Living wage to increase to £10.42 per hour from 1 April next year.
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