In the first main fiscal event for the new Chancellor of the Exchequer Jeremy Hunt announced his Autumn Statement on Thursday 17 November 2022.
Mr Hunt’s three stated priorities were stability, growth and public services. From a tax perspective there was a lot of pain, however we pledge to review our clients’ business and tax affairs so that we can plan to mitigate the impact of the changes.
Listed below are the main areas that are relevant to our clients:
There were several provisions that may impact your future personal tax liabilities:
The level at which the additional rate tax (45% on earned and unearned income, 39.35% on dividend income) starts is reducing from its current level of £150,000 to £125,140 from 6 April 2023. Many more taxpayers will pay the top rates of tax as a result. There may be opportunities for our director shareholder clients to maximise their company drawings before the higher tax rates kick in next April. Those with income over £125,140 will also lose their personal savings allowance.
The dividend allowance will reduce from its current rate of £2,000 to £1,000 for the 2023/24 tax year and then again to £500 for the 2024/25 tax year onwards. More people with relatively modest amounts of dividends will fall into the tax system and be forced to complete annual tax returns.
The personal allowance for income tax will be frozen until April 2028, as will the rate at which individuals start to pay higher rate tax. These figures are £12,570 and £37,700 respectively. A stealthy way of raising taxes each year without actually upping any rates!
Capital Gains Tax
From 6 April 2023 the annual exemption will reduce from its current rate of £12,300 to £6,000. That will lead to additional annual CGT payable of £1,260 for most disposals and £1,764 for most chargeable residential property disposals (sales of non-commercial properties other than your main home).
Then from 6 April 2024 the annual exemption will reduce again to £3,000. That will lead to additional annual CGT payable of £1,860 for most disposals and £2,604 for most chargeable residential property disposals (sales of non-commercial properties other than your main home) based on current rates.
These changes will pull many more people into the self-assessment tax system expressly because they sell capital assets that in future will give rise to tax payable, or because the proceeds breach the reporting limits.
In future it will be even more important to do some serious tax planning before embarking on selling any assets for a gain.
The Chancellor confirmed that the IHT nil rate band will be frozen at its current rate of £325,000 until at least 6 April 2028. That has been the same figure since 6 April 2009 – so no increase for almost twenty years. And to think how much house prices have increased in the same period!
The government collected a record £6.1bn in inheritance tax last year, up 14% from the previous year. With the confirmation of at least another six years of frozen allowance the number of estates falling into the IHT regime is only set to increase even more.
This might be a good opportunity to review your own estate or that of your parents or grandparents. With careful planning you could save lots of tax or even wipe out the tax bill altogether!
There wasn’t too much in the statement relating to businesses but we list below some new information and a summary of some things we already knew:
The rate of corporation tax will increase for most companies from 1 April 2023 from 19% to 25%.
The annual investment limit for the full write off in year one of the purchase of capital equipment remains at £1 million for the foreseeable future.
Employers’ national insurance contribution threshold will be frozen until April 2028. The employment allowance will remain though, meaning that 40% of businesses will not pay any national insurance at all.
VAT threshold will be frozen at £85,000 until March 2026. More businesses will most likely fall into the VAT regime during that period.
For those of you who claim R&D note that the tax relief for SMEs (small and medium sized enterprises) will reduce to 86% (from 130%) and the reclaimable tax credit (for those companies that are loss-making) will reduce to 10% (from 14.5%) from 1 April 2023.
Stamp Duty Land Tax
In order to encourage people to continue buying houses in the next couple of years the Chancellor has announced a hard stop to the concessions introduced in Kwasi Kwarteng’s mini-budget. Namely:
Increasing the Residential nil-rate threshold from £125,000 to £250,000.
Increasing the nil-rate threshold for First Time Buyers’ Relief from £300,000 to £425,000.
Raising the maximum amount that an individual can pay for a home while remaining eligible for First Time Buyers’ Relief, from £500,000 to £625,000.
Those changes only apply in England and Northern Ireland and will now cease on 31 March 2025.
As a result of the success of the roll out of electric vehicles the government has decided that car tax will be payable from April 2025. This will apply to electric cars, vans and motorcycles. New zero emission cars registered after 1 April 2025 will pay just £10 VED in the first year, then the standard rate (£165 per year) thereafter. Cars registered before 1 April 2025 will pay the standard rate from that date.
The Expensive Car Supplement exemption for electric vehicles is due to end in 2025. New zero emission cars registered on or after 1 April 2025 will therefore be liable for the expensive car supplement. The Expensive Car Supplement currently applies to cars with a list price exceeding £40,000 for 5 years.
The government has announced company car tax rates all the way up to 5 April 2028. In addition to the figures previously announced we now know that the appropriate percentages for electric and ultra-low emission cars emitting less than 75g of CO2 per kilometre will increase by 1 percentage point in 2025-26; a further 1% in 2026-27 and a further 1% in 2027-28 up to a maximum appropriate percentage of 5% for electric cars and 21% for ultra-low emission cars.
Any good news?
Not much unfortunately. However, for pensioners the government has decided to keep the triple lock. That means their state pension will increase by inflation next April. Additionally pensioner households will receive an extra £300 Cost of Living payment.
Finally, the chancellor announced a package of measures to tackle tax avoidance, evasion, and wider non-compliance. This will raise an estimated £1.7 billion over the next 5 years. It seems a fair aim that those of us who comply with the rules do not end up subsidising those who don’t!
If you wish to explore ways of reducing your tax burden or increasing your business profits get in touch with your main contact at Friend & Grant.
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