Four Chancellors, and three fiscal plans in less than 12 months. On Thursday 17th November Jeremy Hunt delivered to Parliament his plan against a backdrop of high levels of inflation; the continuing war in Ukraine; increasing energy prices, cost of living challenges; and the impact of Kwasi Kwarteng’s “mini-budget” in September. There had been significant speculation of the need for tax rises and spending cuts to fill a £50 billion black hole in public finances.
Much has changed since Hugh Dalton resigned when his Budget leaked before he presented it to Parliament in 1947. This Autumn Statement was trailed before the event giving us an indication of what to expect.
So, what did we actually get? The Chancellor focussed his tax and spending measures around three themes:
• Stability
• Growth
• Public Services
For those taking an interest in financial planning this article sets out some of the highlights. I have deliberately confined myself to three pages of highlights that I think will be of most relevance and interest to readers. Of course, I could have filled many times this number but I would encourage anyone with questions to contact me regarding their personal situation:
• Further freezing of income tax basic and higher rate bands, National Insurance rate bands, inheritance tax nil rate bands and VAT thresholds
• The capital gains tax allowance reducing next tax year from £12,300 to £6,000, and then £3,000 in April 2024.
• The dividend tax allowance reducing next tax year from £2,000 to £1,000, and then to £500 in April 2024.
• The Additional income tax band reducing from earning over £150,000 to earnings over £125,140 from April 2023.
• Stamp duty cuts announced on 23 September 2022 remaining in force until 31 March 2025, rather than indefinitely.
• The state pension will be protected under the triple lock this year, increasing in April 2023 by 10.1%.
• Other state benefits will rise with the consumer prices index, which will mean a 10.1% increase in April 2023
• The benefits cap will increase with inflation
• The national living wage increasing, with those over the age of 23 seeing an increase from £9.50 per hour to £10.42 per hour
• The energy price guarantee scheme being extended for a further 12 months from April 2023, at a slightly higher rate of £3,000 for the average household
• The windfall tax on excessive profits of energy companies extended with an additional levy on electricity generators. This aims to raise £14bn next year.
This was a far-reaching Autumn Statement with a lot to consider and factor into short- and long-term financial planning. None of these changes come in with immediate effect, so tax year-end planning will be even more essential.
Here are a few observations covering some of the announcements. I’ll be discussing these with clients at our regular meetings. As always, if you know someone who you think would be interested in the subjects covered in this newsletter then feel free to forward it to them.
Freezing the personal allowance and tax bands further will mean that millions of individuals will end up paying more income tax. Further, reducing the additional rate threshold combined with the current freezes in the personal allowance and the higher rate tax band, will move more people into higher rate tax brackets. An individual earning £150,000 in the current tax year could be just over £1,240 (around £1,243) worse off from 6 April 2023, because an extra 5% of income tax will apply to the amount of their income that falls between £125,140 and £150,000; they could be even worse off if receiving dividend income. As a result, it would be wise, where appropriate, to carry out planning; for example, where possible, timing income to fall into the current tax year, maximising the use of pension contributions and/or making gift aid payments can help save tax.
A reminder about Gift Aid for Higher Rate taxpayers; If you pay tax above the basic rate, you can claim the difference between the rate you pay and basic rate on your donation. You can do this either through your Self Assessment tax return or by asking HM Revenue and Customs (HMRC) to amend your tax code. For example: you donate £100 to charity. The charity claims Gift Aid to make your donation £125. You pay 40% tax so you can personally claim back £25.00 (£125.00 x 20%).
(Editor’s hint: I’m planning the Solus Financial Planning Charity fundraising events for next year. Whilst Solus Financial Planning Ltd cover the core cost if anyone does want to sponsor me and is a Higher Rate taxpayer and wants to claim gift aid into the bargain then look out for announcements…)
• In terms of general planning, investing couples could aim to use their dividend and personal savings allowances in full (and ensure that they do not lose out on the ability to transfer the transferable marriage allowance where eligible to do so).
• Individuals could also try to arrange their investment holdings in such a way to ensure they fully use both personal allowances and starting/basic rate tax bands.
• Individuals could maximise contributions to ISAs, particularly where dividends are likely to exceed the dividend tax allowance (reducing to £1,000 from 6 April 2023) and/or the higher rate tax threshold. They could also give consideration to investing into VCTs (which pay tax-free dividends) and investment bonds (for tax-deferral).
In the mini-Budget on the 23 September the previous Chancellor reversed the National Insurance increases of 1.25% which took effect from April 2022 which means the rates from November will be 12% between the lower earnings limit and upper earnings limit and 2% above, and 13.8% for employers. Unlike most of the other mini-Budget announcements, this change remains in force.
• The increase in the threshold from £9,880 to £12,570 will mean that the average worker will see a reduction in their NIC bill by around £500.
• The reduction of the previously announced increase will mean most employees will start to receive the cut in this month’s pay although some may have to wait until December or January.
• Consider salary sacrifice for pension contributions. Using salary sacrifice means that both the employee and the employer pay less NICs, so further tax savings can be achieved.
| Income Tax Rate | |
| Basic Rate | 8.75% |
| Higher Rate | 33.75% |
| Additional Rate | 39.35% |
It is expected that the dividend tax changes, along with the CGT exemption reduction will raise £1.2 billion a year from 2025.
The dividend tax rates will remain unchanged from April 2023.
The dividend allowance will reduce to £1,000 in April 2023 and £500 in April 2024.
- The 0% dividend allowance means that, regardless of their tax rates, a married couple or civil partners can currently receive up to £4,000 of dividend income with no tax liability, provided that they each have sufficient dividend income to utilise their allowance. Using this allowance remains even more important with the impending reduction.
- Business owners should ensure they are drawing income in the most optimal way. This is especially important with the reduction in the dividend allowance and the dividend tax rates not reducing as outlined in September.
As the reduction in the dividend allowance does not take effect until 6 April 2023, we have some time to plan ahead. Where appropriate, ensuring your dividend allowance is used in this tax year will be vital.
Solus Financial Planning helps clients to achieve their life goals and ambitions and to live the life they want by making sure their money is working effectively through a combination of risk-rated portfolios and effective use of tax planning.
If you, or someone you know, would like further information, or a chat about how to improve your personal situation then for a free, no obligation meeting please contact me by phone or email: gavin@solusfinancial.co.uk, 01245 984546.