What does the Autumn Statement mean for your finances?
What a year it’s been in British politics with three prime ministers and four chancellors holding office.
Following the exit of Liz Truss and Kwasi Kwarteng, the new chancellor Jeremy Hunt yesterday delivered his first autumn statement.
Hunt delivered exactly what was expected – a plan designed to strengthen public finances, bring down inflation and protect jobs.
Two years ago we warned of the likely post-Covid tax raid (those halcyon days when Rishi was a mere chancellor!). The small matters of record inflation levels, war and an energy crisis got in the way but the tax worm has now finally turned.
Pension tax relief some how escaped this time around (what a relief) so maximise these benefits while you can, assuming it fits with your plan.
Here are the statement highlights and what they could mean for you:
A reduction in tax-free allowances and exemptions
Capital Gains Tax
The Capital Gains Tax (CGT) annual exempt amount will fall from £12,300 to £6,000 in April 2023, and then to £3,000 in April 2024.
This means that you’ll only be able to realise profits of up to £6,000 on investment properties and unwrapped company shares/funds before CGT becomes due.
Not only does this mean potentially paying more tax if you need to sell an asset but in the case of larger fund portfolios, CGT might be due when you simply want to switch into different funds.
If you’re planning to sell an investment property – price aside – it may be better to do this sooner rather than later.
Dividend Tax
The Dividend Allowance – the amount you can earn from dividends before Dividend Tax is paid – will be reduced from £2,000 to £1,000 in April 2023, and then to £500 in April 2024.
If you receive any income from dividends, you will pay more tax on these dividends from April 2023 onwards.
This will affect the net return on your investments, and in the case of business owners drawing dividends from their company, their net income will fall.
Inheritance Tax thresholds frozen for a further 2 years
The level at which Inheritance Tax (IHT) kicks in – the nil-rate band – has been at £325,000 since April 2009. The additional residence nil-rate band is set at £175,000 and normally applies if you leave your home to a child or grandchild.
These thresholds will remain at these levels until at least 2028.
As asset prices and estate values rise in future, your IHT liability will also rise and a greater number of estates will be subjected to IHT.
A cut to the level at which you pay additional-rate Income Tax
The 45% rate will now apply for earnings above £125,140 rather than the previous level of £150,000. It means if you earn £150,000 or more, you will pay just over £1,200 more in Income Tax each year.
The Income Tax Personal Allowance – the amount an individual can typically earn before paying Income Tax – will stay at the current level of £12,570 until 2028.
All these measures are also likely to increase your income tax bill. As earnings continue to rise, more of your income will be subject to tax.
The State Pension “triple lock” to be honoured
Hunt announced that he would increase the State Pension in line with inflation.
This means pensioners can expect a boost of just over 10% to their State Pension from April 2023.
For someone on the full, new State Pension, that will represent an additional payment of more than £900 a year.
Stamp Duty reductions to end in 2025
The £125,000 threshold increased to £250,000 while he increased the minimum threshold for first-time buyers from £300,000 to £450,000.
These thresholds are time-limited, ending on 31 March 2025.
These are simply measures to keep the property market ticking over, as so many jobs rely on this sector.
Other measures
Corporation Tax
As confirmed in October 2022, the main rate of Corporation Tax will increase to 25% from April 2023.
Private enterprise is starting to feel the squeeze. If you’re a business owner, now’s the time to see how pensions might help ease your tax bill.
Health and social care
Hunt announced spending of over £10 billion to help improve adult social care and the performance of the NHS.
However the lifetime cap on social care costs in England that was due to come into force in October 2023 will be delayed by two years.
This isn’t the first time this has been delayed. Will the cap on care costs ever happen?
Get in touch
As ever, we’ll be helping our clients navigate these changes so their financial plans are set-up in the most tax-efficient way possible.
If you think your financial plan could do with similar help or you just need to understand what any of this means for you, just get in touch (before they change their minds again!).
Simon
This content for general information only and shouldn’t be deemed to constitute personal advice. You should seek the counsel of a professional before taking any major decisions.