This month, Jeremy Hunt, the newly appointed Chancellor of the Exchequer, delivered an Autumn Statement outlining his three key priorities: stability, growth and public services.
In the weeks preceding the statement, the Chancellor hinted that there would be difficult times ahead for the public saying, everyone will “need to pay a bit more” when it comes to tax. As it turned out, the Chancellor was true to his word, announcing a plan filled with new tax rules and deciding to wait on other decisions, including making significant changes to pensions.
So, what exactly was announced, and what does it mean for your money?
“Stealth tax” on personal income
The personal tax-free allowance, which traditionally rises each year to allow for inflation, will be frozen at £12,570 for lower rate taxpayers until April 2028. The threshold at which workers become liable for the higher rate tax will remain at £50,270 for the same duration. National insurance thresholds will also remain frozen.
Although these taxes aren’t being raised, individuals will ultimately pay more tax as their incomes grow, hence the term “stealth tax”.
It is also worth noting that the additional rate of income tax threshold will be lowered from £150,000 to £125,140 from 6 April 2023. Earners already receiving the new amount will automatically pay more tax, while those who are close to the threshold may want to reconsider planned pay rises.
Dividend allowance and capital gains exemption halved, and halved again
From April 2023, the tax-free dividend allowance will be cut from £2,000 to £1,000 and then to £500 from April 2024. This could make saving into a pension even more attractive for company owners and directors. We recommend speaking to the team at Cooper Associates Wealth Management if you are likely to be affected.
There are also plans to half the exemption amount for capital gains from £12,300 to £6,000 next year and to £3,000 in the year following. This could particularly impact Buy-to-Let investors who may have been planning to sell rather than remortgage in the current climate. Thomas Jackson, Managing Director at Cooper Associates Mortgages recommends that landlords seek advice six to eight months before the end of their mortgage deal. Our team will be able to advise you on the best mortgages available on the market and can refer you to our wealth management team if you need further advice on the best way to invest your money.
Another “stealth tax” on inheritance nil rate bands
Inheritance tax nil rate bands will also remain frozen until April 2028. The nil-rate band is frozen at £325,000 while the residence nil-rate will remain at £175,000. The residence nil-rate band taper will continue to start at £2 million.
Again, while not a direct raise in taxes, as individuals grow their wealth, particularly through property, they are likely to pay increased amounts of inheritance tax.
Our advice? Get advice
There is a gaping deficit in the UK’s budget which needs to be filled. Clearly, the government intends to raise the additional funds needed through increased taxation, with an eye on reducing the tax burden when the economy allows.
However, with a general election scheduled to be held no later than January 2025, it is possible that a new government may have an alternative plan when it comes to the UK’s finances. Even if the current government remains in power, all of the measures recently introduced are intended to suit the political agenda of the day. Typically, these are intended to be short-term solutions.
When planning for your financial future, you always need to consider the long-term. Our expert teams at Cooper Associates Wealth Management and Cooper Associates Accountancy can help you to understand what legislative changes mean for your money, and how best to achieve your financial goals. Initial appointments are always free so please get in touch.