Autumn Statement 2022

Following Jeremy Hunt’s attempts to calm markets by reversing Liz Truss’s mini-budget announcements, his Autumn Statement went further by cutting the CGT annual exemption, lowering the additional rate threshold to £125,140 and extending the freezing of other allowances by a further two years. Please find a summary of the changes below:

Income tax

Income tax rates for 2023/24 will remain at the basic, higher and additional rates of 20%, 40% and 45% respectively. The abolition of the additional rate of tax announced in the Mini Budget will not happen. The Scottish Government intend to hold their own Budget on 15th December, and this will determine the rates which will apply to Scottish taxpayers.

The point at which additional rate tax becomes payable will be cut from £150,000 to £125,140 from 6th April 2023. This will mean that those already paying tax at 45% will pay an extra £1,243 in 2023/24. The Government forecast that approximately 250,000 individuals will pay some extra tax due to this measure.

The personal allowance and basic rate band remain frozen at £12,570 and £37,700 respectively. This freeze of allowances has been extended by a further two years until April 2028. This means that the higher rate tax threshold will remain at £50,270 for those entitled to a full personal allowance.

Dividends

The dividend allowance is to be halved from £2,000 to £1,000 for 2023/24, and halved again to £500 for 2024/25. Consequently, many more investors will need to complete tax returns if their dividend income exceeds £1,000 next year. The dividend tax rates for basic rate, higher rate and additional rate taxpayers will remain at 8.75%, 33.75% and 39.35% for both the current tax year and 2023/24. The 1.25% increase installed from the start of 2022/23 will not be reversed.

Pensions

There were no changes announced to pension tax relief. However, the reduction of the threshold for additional rate tax to £125,140 will see more high earners benefit from relief at 45% on their pension savings. Wage inflation may also mean that a pension contribution is a more attractive option for those who may otherwise lose out on child benefit or personal allowance.

It was also confirmed that the triple lock on the State Pension would be maintained, guaranteeing the 10.1% CPI-based increase for next April along with the same level of increase to the Pension Credit.

This means the New State Pension for someone with a full National Insurance contribution record will increase from £185.15 per week to £203.85 per week.

The Basic State Pension for someone with a full National Insurance contribution record will increase from £141.85 per week to £156.20 week.

There has been an ongoing review of State Pension age and whether the current timetable for changes is still appropriate. The Government will publish their response in early 2023.

There was no mention of any extension to the freeze to the lifetime allowance which is expected to remain fixed at £1,073,100 until April 2026.

The annual allowance remains at £40,000 for 2023/24.

The money purchase annual allowance remains at £4,000 for 2023/24.

For those higher earners affected by the tapered annual allowance - threshold income remains at £200,000 and adjusted income at £240,000 for 2023/24.

National Insurance

The increase to NI to help pay for social care reforms has been scrapped. The additional 1.25% which was added to the rates of NI for 2022/23 for employees, employers and the self-employed has been removed from November 2022.

NI thresholds will be fixed at the current 2022/23 levels. The changes to the thresholds at which individuals (both employed and self-employed) start to pay NI, which were introduced in July 2022, will remain - i.e. they're kept in line with the annual personal allowance of £12,570.

To confirm, this means:

• Class 1A and 1B employers pay 13.8% on earnings over £9,100.

• Class 1 employees pay 12% on their earnings between the primary threshold and the upper earnings limit; between £12,570 and £50,270.

• Class 1 employees pay 2%, on their earnings above the National Insurance contributions upper earnings limit.

Capital Gains Tax

The chancellor announced that the CGT annual exemption would be cut from £12,300 to £6,000 from April 2023, and to £3,000 from April 2024. Based on 2021/22 figures an estimated extra 235,000 individuals will need to file a self-assessment return in 2023/24 as a consequence.

There was no change to the rates of CGT and these will continue to be 10% and 20% (18% and 28% respectively for gains on residential property).

Inheritance tax

The freeze on both the nil rate band (NRB) and residence nil rate band (RNRB) has been extended for an additional two years. The NRB will remain at £325,000 and the RNRB at £175,000 until April 2028.

Corporation tax

Corporation tax will rise to 25% from April 2023 as originally planned. However, small companies with profits below £50,000 will continue to pay at the current rate of 19%. There will also be a reintroduction of tapering relief for businesses with profits between £50,000 and £250,000 so that they pay less than the main rate.

ISAs

The adult ISA annual subscription limit for 2023/24 will remain unchanged at £20,000, and the junior ISA annual subscription limit for 2023/24 will remain unchanged at £9,000.

This message is the opinion of Velarium Wealth and contains our understanding of the latest Government Budget Statement as of 17th November 2022 that we feel is relevant at the current time. This document has been prepared for general information only and is not guaranteed to be complete or accurate. It does not contain all of the information which an investor may require in order to make an investment decision.