At the end of September, we were announcing a “new era” budget with the biggest tax cuts in 50 years. Eight weeks later that “era” has proved short-lived and the latest Chancellor Jeremy Hunt was faced with the formidable task of retracting most of what had been promised and resetting the budget to the reality that the country is officially in recession and we are facing a cost of living crisis.
The promise was that those most in need would be protected and it would be those with the “broadest shoulders”, the middle-income and wealthier households who would be called upon to balance the books. Certainly, if we are to trust the recent Treasury analysis, 55 per cent of households would be made worse off by the budget next year but the poorer 45 per cent would gain.
Most of Hunt’s announcements were a number of totally expected “U” turns returning us more or less safely to the original plans, with the exception of Stamp Duty Land Tax (SDLT) which has a reprieve until April 2025. For those of you around in the 1980s or aware of the classic Dallas tv programme, it was a Bobby Ewing in the shower moment. The September mini budget had simply not happened.
However, Hunt may have pressed “rewind” but he has also imposed the additional safeguard of freezing a number of fiscal bandings or thresholds – the personal tax allowance, National Insurance, VAT registration limits, Inheritance Tax (IHT) Nil Rate Band, Residence Nil Rate Band, Pension Lifetime Allowance (LTA), Annual Investment Allowance (AIA) – are all on ice for at least another three years to April 2026. In effect this means that with no increase in the personal tax allowance for eight years, inflation and organic pay increases means that many more will be pushed into higher income tax bandings. These measures are what prompted Rachel Reeves, the shadow chancellor, to claim that that Hunt had “picked the pockets” of the nation by deploying a “raft of stealth taxes”.
The headline income tax change is undoubtedly the announcement the income level at which the “additional” 45% rate of income tax starts to apply will be reduced from £150,00 to £125,140. This rather puzzling figure is the result of trying to tie in with the £12,570 personal allowance and the tapering effect this has for those earning in excess of £100,000 which means in reality they appear to be paying 60% tax. Many in the industry feel that this might be a missed opportunity to simplify the system by just abolishing the personal allowance completely for those earning over £100,000.
This change to income tax bandings is much less significant than the impact on those who take dividends as part of their income. Currently the dividend allowance is zero-rated for the first £2,000. That halves from April 2023 and again in 2024 to just £500. This makes dividend planning much more restricted and possibly not the viable option it was some years ago.
Businesses will also be impacted by the increase of corporation tax to 25% and there is a significant “rebalancing” to Research & Development (R&D) tax relief in a move to counteract alleged abuse of the schemes and the rise in fraudulent claims. It was also announced, almost nonsensically, that there is 'no repeal, of the IR35 repeal, that was repealed'. In other words - the off-payroll rules are here to stay.
Capital Gains Tax (CGT) has also seen its annual exemption slashed from the current £12,300 to just £6,000 in 2023 and £3,000 in 2024. So, if you are someone who is thinking of selling an asset subject to CGT, such as a second home or shares, it might be worth considering sooner rather than later and also checking, if married, that you are taking advantage of the fact that both spouses qualify for exemption.
If you are someone to benefit from a company car, you need to be aware that from April 2025, electric vehicles will begin to pay road tax, although they will continue to attract a benefit in kind albeit very low.
The Budget had some elements of good news. There will be further support with energy bills. State pensions and means-tested benefits will be uprated in line with the 10.1% inflation and there were no further restrictions on tax relief for pension contributions. The Government is also increasing the generosity and availability of certain Venture Capital Schemes, including the Seed Enterprise Investment Scheme for start-ups.
Read more about the details of The Autumn Statement in our guide
If you missed our webinar on Friday 18th November, you can watch it here
The Autumn Statement has pulled us back into a more real world with greater clarity about the future in terms of the many frozen thresholds. It still makes tax planning complex and often necessary and beneficial to take professional advice - contact us
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