Against the backdrop of recession and the highest monthly increase in inflation in over 40 years, Chancellor Jeremy Hunt delivered today’s Autumn Statement. The focus was on bridging a gap of some £55 billion in public finances with a combination of tax rises (£25 billion) and public spending cuts (£30 billion).
The majority of the key tax-raising measures announced by the Chancellor in his Autumn Statement today, the third fiscal event in as many months, take effect from April 2023. The main revenue raising strategy is to freeze various tax allowances, including the Income Tax Personal Allowance and the VAT threshold. With inflation climbing to over 10%, the government receives its own windfall in terms of VAT receipts. The decision to reduce the additional (upper) rate threshold next year means that more taxpayers will pay tax at the 45% rate, thus spreading some of the tax burden, as anticipated, to higher earners.
Looking at the position of the ‘private client’:
A few changes for individuals had already been confirmed ahead of the Autumn Statement, either as part of Kwarteng’s mini-budget or its aftermath:
- Basic-rate income tax remains at 20% “indefinitely”. While Rishi Sunak originally announced the rate would drop to 19% from April 2024 during his previous role as Chancellor, and Kwarteng brought this change forward to 2023, Hunt has since announced the measure will be dropped altogether. The Government says it will save around £6bn a year by doing so.
- National Insurance increase has been scrapped. The National Insurance rise of 1.25 percentage points, which took effect in April this year, was reversed as part of the mini-budget. This measure has been kept in effect, along with the cancellation of the April 2023 health and social care levy.
- Dividend tax rates will remain unchanged. These also increased by 1.25 percentage points alongside National Insurance this April, and Hunt has confirmed they will remain at their increased levels from April 2023.
Additional-rate income tax
One of the biggest announcements made by the Chancellor was the lowering of the additional-rate tax threshold from £150,000 a year to £125,140 as of 6 April 2023.
The additional-rate threshold will be applied to anyone earning more than £125,140 a year in England, Wales and Northern Ireland. The Government will legislate this change in the Autumn finance bill 2022.
It’s predicted the change to the additional-rate threshold will mean 250,000 more taxpayers will now find themselves paying 45%.
This announcement is in stark contrast to Hunt’s predecessor’s plans to scrap the additional tax rate altogether.
Income tax thresholds
The personal allowance threshold will remain frozen for a further two years, continuing until 2028, along with the higher-rate threshold and the National Insurance contributions (NICs) thresholds.
Some are referring to this as a ‘stealth tax’ – where wage increases over time will cause people to find themselves caught in higher tax bands, potentially negating pay rises.
In July 2022, NICs thresholds were increased to be brought in line with the income tax personal allowance, and fixed until April 2026. The Chancellor today announced that this freeze will be maintained for an additional two years, until April 2028.
Capital gains tax
In the statement, the Chancellor announced a cut to the capital gains tax (CGT) allowance, also known as the annual exempt amount, over the next two years.
The original allowance of £12,300 will be cut to £6,000 for the tax year 2023/24 and will then be halved again to £3,000 in 2024/25. This means a couple’s allowance will be reduced to £12,000 and £6,000 respectively.
The Government’s aim is to raise an extra £40m by 2027 by reducing the allowance rates for CGT.
The inheritance tax nil-rate is currently set at £325,000 until April 2026 and will remain at this rate for a further two years until April 2028.
The residence nil-rate band will continue at £175,000, and the residence nil-rate band taper will still start at £2 million.
Qualifying estates will still be able to pass on up to £500,000, with the qualifying estate of a surviving spouse or civil partner remaining at £1m without inheritance tax liability.
The threshold freeze is seen by some as a way to increase inheritance tax bills without directly changing the rate. Due to the increase in house prices, more and more people will face higher inheritance tax bills when dealing with an estate.
Data published by HMRC in October showed a £400m increase in inheritance tax income when compared to the same time the previous year. These measures will be legislated by the Government in the Autumn finance bill.
The Chancellor announced that the dividend tax threshold will be slashed from £2,000 to £1,000 from April 2023 and then again to £500 the following year.
Along with the changes to CGT, the Chancellor says that these changes will raise over £1.2bn a year from 2025. Regardless of your tax band, anyone who receives dividends will be affected by the change.
Pension triple lock upheld
Ending weeks of speculation about whether or not the so-called ‘triple lock’ protection would be upheld, the Chancellor confirmed that pensions – like benefits – would rise in line with September’s inflation rate of 10.1%.
The triple lock refers to a manifesto pledge that state pensions would rise in line with whichever is highest of the following: the average wage increase, the previous September’s inflation figure, or 2.5%.
Acknowledging that the cost-of-living crisis is hurting all pensioners, Hunt announced that in April 2023, an £870 increase will represent the “biggest ever cash increase in the state pension”. The standard minimum income guarantee in pension credit will also increase in line with inflation from April 2023 (rather than in line with average earnings growth).
From April 2023, state pension payments will be:
- £203.85 per week (up from £185.15) for those who reached state pension age after April 2016
- £156.20 per week (up from £141.85) for those who reached state pension age before April 2016.
A review of the state pension age is currently being carried out, which considers whether the existing timetable remains appropriate. This will be published in early 2023.
Vehicle excise duty
Electric vehicles will no longer be exempt from vehicle excise duty from April 2025. Vehicle excise duty is a tax on all vehicles using public roads in the UK, and applies differently based on the vehicle’s CO2 emissions.
Stamp duty cuts remain until 2025
One of a few measures to remain initially unchanged from the mini-budget was the decision to raise the threshold at which stamp duty land tax is paid (in England and Northern Ireland) from £125,000 to £250,000.
For first-time buyers, the threshold increased from £300,000 to £425,000. Now, because the OBR expects housing activity to slow over the next two years, these cuts will only remain in place until 31st March 2025 – after which, Hunt will “sunset the measure”.