When Jeremy Hunt stood up to deliver the much-anticipated Autumn Budget statement, he flagged the fact that he would have to take difficult decisions.
“As Conservatives we do not leave our debts to the next generation,” he said, adding that the “United Kingdom will always pay its way”.
However, to deal with a coming recession and spiralling inflation, he has outlined several measures that will affect all of our incomes, with many of us paying higher taxes on everything from our income to our capital gains.
Here is what will change.
Tax bands frozen
The current rate at which income tax kicks in (£12,571), and the rate at which higher rate income tax kicks in will be frozen at £50,270 until the end of the 2027/28 tax year.
This will pull many more people into the higher rate income bracket over time because wages will rise to try to keep pace with inflation, while more people will start to pay tax because they earn over the £12,571 threshold.
The inheritance tax threshold has also been frozen at £325,000, until 2028, meaning many more families will pay this tax.
Additional rate tax band lowered
The rate at which additional rate tax kicks in, at 45p, will be lowered from £150,000 to £125,140. This will result in many more people paying the tax, and these people may lose other allowances too. For example, currently, those who pay additional rate tax do not have a personal savings allowance, meaning they cannot earn savings interest without paying tax.
Dividend rate tax allowance lowered
The amount that individuals can earn from dividends without paying dividend tax will be cut from £2,000 to £1,000. From April 2024, it will be reduced to £500.
This will affect both business owners who pay themselves via a combination of dividends and salary, and those who have investments outside their ISAs and pensions which pay them an income.
Capital Gains Tax Exemption cut
The exempt allowance for capital gains tax will be reduced from £12,300 to £6,000 from April next year, then cut again to £3,000 the following year, affecting those who make gains on shares, property, or other assets.
Pensions and benefits rise at rate of inflation
State pensions and benefits will rise at the rate of inflation – 10.1% in line with September’s inflation rate.
Energy bill support and cost of living help to change
The government will continue to give help with energy costs, but it will be at less generous levels than the most recent scheme.
From April, for 12 months, the amount paid by an average household for their energy under the energy price guarantee will rise from £2,500 to £3,000 a year.
Pensioners, those on means-tested benefits and those with disability benefits will receive ‘cost of living payments’ of £900, £300, and £150 respectively.
The National Living Wage and National Minimum Wages will increase by 9.7% and
from 1 April 2023.
Electric car owners to pay more
Electric vehicles are currently exempt from vehicle tax, but this will change from April 2025, by which time half of cars are predicted to be electric. However, Hunt added that the company car tax rates would remain lower for electric cars.
Stamp duty cut has a time limit
Jeremy Hunt has retained the former Chancellor Kwasi Kwarteng’s stamp duty threshold cut, so that those who are buying a home can buy something worth up to £250,000 without paying stamp duty, and first-time buyers can buy anything worth £425,000 without paying the tax.
However, this cut will be removed in March 2025. At that point the nil rate threshold will be cut back from £250,000 to £125,000, while first-time buyers will be able to buy a property for up to £300,000 without paying any stamp duty at all. Meanwhile the maximum purchase price to which first time buyers’ stamp duty relief can be applied to will be cut from £625,000 to £500,000.
What you can do about Budget changes
While there are some tax rises in this Autumn Budget that you can do little about, there are changes you can make now to ensure that you do not pay more tax than you need to.
These may include:
- Using your ISA and pension allowances to shelter as much money as possible.
The cut to dividend tax exemptions and the capital gains tax threshold mean you will pay more tax on dividend gains and investment gains outside of these tax wrappers. It makes sense to use both your pension and ISA allowances whenever possible to deal with this.
- Taking capital gains tax advice
If you know that you will sell assets that will incur capital gains in the coming years, taking advice now could help you to pay less of it. Steps you might be advised to take include utilising allowances every year and staggering your gains across tax years, or ensuring you utilise a spouse’s allowance as well.
- Using salary sacrifice
Frozen tax bands could mean you pay more income tax, but salary sacrifice schemes that allow you to pay into a pension or buy extra holiday or other perks could help bring down your base salary and allow you and your employer to pay less national insurance too.
Our independent financial advisers can support you in assessing what the Autumn Statement announcements mean for your finances - get in touch with us on 0330 606 849 or email mail@afhgroup.com to request a meeting.
17th November 2022