Today’s Mini Budget: The Highlights
In his Fiscal Statement, Kwasi Kwarteng introduced a number of tax cuts aimed at addressing the rising cost of living and delivering future growth.
In his ‘plan for growth’ he carried through on Liz Truss’s leadership pledge to reverse the National Insurance and dividend tax increases that were implemented to help fund social care reforms. And in a surprise move, he will remove the additional rate of income tax from April 2023 and bring forward the 1% cut to basic rate tax.
We’ll inform clients on an individual basis if or how any of these changes will impact them but for now, some politics-free highlights!:
INCOME TAX
Earnings & Savings
No-one saw this coming. The additional rate of tax of 45% on income in excess of £150,000 is to be abolished from 6 April 2023. This means that all taxable income over £37,700 will be taxed at 40% (32.5% for dividends).
The cut to the basic rate of income tax (20% down to 19%) will take place a year earlier than planned, also from April 2023.
Dividends
Another surprise. The rate of tax on dividend income is to be cut by 1.25% from 6 April 2023. The rates will return to their pre-April 2022 levels of 7.5% (basic rate) and 32.5% (higher rate) on amounts in excess of the £2,000 dividend allowance. Following the removal of the additional rate, 32.5% will be the highest rate paid on dividends from next year.
NATIONAL INSURANCE
The increase to NI to help pay for social care reforms has been scrapped. The additional 1.25% which was added to the rates of NI for 2022/23 for employees, employers and the self-employed will be removed from November 2022.
PENSIONS
There were no changes to pension tax relief or allowances in the Emergency Budget.
The removal of the 45% income tax band from 6 April 2023 will mean that the maximum level of tax relief on pensions will be 40%.
Despite the reduction of basic rate income tax from 20% to 19% from 6 April 2023, tax relief that’s claimed at source will remain at 20% until April 2024 (this is a good thing).
CORPORATION TAX
Good news for business owners.
The planned rise to the rates of corporation tax from 19% to 25% from April 2023 will not go ahead. The rate of corporation tax will remain at 19% and the reintroduction of tapering relief for businesses with profits under £250,000 has also been scrapped.
CAPITAL GAINS TAX
No changes announced.
INHERITANCE TAX
No changes announced.
SEED ENTERPRISE INVESTMENT SCHEMES (SEIS)
In a move to encourage entrepreneurism, the Chancellor is increasing the amount of funding that young start-up companies can raise through the SEIS. The amount that investors can subscribe into SEIS and enjoy the tax breaks on offer will double from £100,000 to £200,000 from April 2023.
IR35
A big one for those who operate via personal services companies.
From 6 April 2023, the responsibility for determining employment status and paying the right amount of tax and NI will again fall on contractors.
This will take the burden away from the company engaging the services of a contractor, saving them time and money and allowing them to focus on growth.
The rules as to the employment status of a worker providing services through an intermediary have not changed, and the Chancellor promised that compliance would be kept under review.
STAMP DUTY LAND TAX
As part of a package of measures designed to ‘get the housing market moving’, the SDLT threshold will be doubled so that no tax will be due on purchases of residential property up to £250,000 in England and Northern Ireland.
This relief is extended to first time buyers who will pay no tax on purchases less than £425,000 (up from £300,000) on properties up to a maximum value of £625,000.
These new thresholds will apply from today.
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We’ll cover some of these changes in more detail in future I’m sure.
For now, if you need immediate help understanding what any of this means for you, just get in touch.
Mind how you go.
Simon Ben-Nathan