The much-hyped Autumn Statement was delivered this morning by chancellor Jeremy Hunt. As we were pre-warned, we will all pay more tax, but Jeremy will be “asking those who have more to pay more”.
Take a look at our briefing here.
The headline grabber will be the reduction to the threshold when the 45p Additional Rate Tax will become payable, falling from £150,000 to £125,140 in April 2023, meaning that someone earning £150,000 next year will pay an additional £1,243 in income tax next tax-year.
It also means that many higher earners will lose their personal savings allowance of £500 – so will now have to pay tax on any savings interest they earn outside an ISA.
Of greater significance is the decision to extend the freeze of the income tax personal allowance, higher rate thresholds, National Insurance and Inheritance Tax thresholds until April 2028 (two years longer than previously planned). The tax burden will therefore rise by stealth over the next five years as everyone will face rising tax bills as their incomes/estates increase.
The tax-free allowances for dividends will fall from today’s £2,000, to £1,000 next tax-year and £500 the year after. This will drag more investors into paying tax on their liable investments, increase dividend taxes and increase the importance of using ISA allowances where possible. Private company directors will see their tax liability increase on their dividend payments. However, dividend tax rates remain below PAYE rates, but this move further reduces the benefit of dividends for company directors.
A further blow to private investors is the reduction in the Capital Gains Tax Allowance from £12,300 to £6,000 next tax-year and £3,000 from April 2024. This will mean investment portfolios are likely to become ‘more pregnant’ with gains in the future where the ability to wash out gains each year is reduced. However, there was a collective sigh of relief in our offices when rates of CGT were not aligned with income tax rates.
Around 15% of our clients now own electric cars and they will not be pleased to hear that from 2025 they will have to pay Road Tax. But those that have an electric company car will still only pay 2% of the list price as a benefit in kind, far less than for non-electric cars, but this will rise by 1% from 2025/26, capping out at 5% from 2027/28.
It is a gloomy picture for all taxpayers given that more of what they earn from their incomes, dividends, and investments will be going to the exchequer. Where affordable, consideration should be given to tax efficient investments such as ISAs, or tax relievable investments such as pensions, or alternative investments such as Enterprise Investment Schemes and Venture Capital Trusts. Freezing the Inheritance tax (IHT) Nil Rate Band at £325k also increases the need for many to consider methods of IHT mitigation as more and more estates are pushed over the thresholds.
Pension funds allowances and reliefs were again left alone, but for the 50% of Henwood Court’s clients in receipt of the State Pension, they will be pleased to see they will be getting a 10.1% pay rise in April 2023. The other 50% will not welcome the decision to again review the state retirement age next year, which could see the age when the state pension becomes payable pushed further back.
- Help with energy costs
We will all continue to get support with our energy costs after April 2023 for a further 12 months through the Energy Price Guarantee, albeit, the maximum costs that a typical household will pay will rise from £2,500 to £3,000. This is clearly welcome, but very much strikes me as giving with one hand and taking with the other. Still, it provides some stability for households and businesses, at enormous cost, but will attack the biggest culprit for rising inflation, which by the way is expected to fall to 7.4% next year.