Jeremy Hunt released his first full Autumn Statement today. After having delivered an appetiser a month earlier, we already knew some things (Corporation tax up to 25% from April etc.) and waited for the rumoured catalogue of cuts and rises that had been filtering into the media ever since that day. However, it seems much of the rumour mill was just that, nothing but pure speculation.
So, who were the winners and losers in this Autumn Statement?
Pretty much across the board, earners will take home more than they do in the current tax year as none of us will be lumbered with the 1.25% Health & Social Care levy (paid via National insurance contributions – NIC). Those reductions in NIC effective from this month (which had been announced by then Chancellor Kwarteng and retained by Chancellor Hunt) means that even someone on £15,000 per annum will be £107 better off. However, its due to the NICs you have already paid in the current tax year up to now, so don’t expect to see an increase in your monthly pay post April.
Those earning over £125,140 are the few who will see their tax bill actually rise, with the additional rate dropping from £150,000 to £125,140 from April 2023. However, even with this change they will find themselves better off had the Health and Social Care Levy remained (well nearly everyone – see losers below).
People on the national living wage might not have been expecting to see a 9.7% increase (to £10.42 an hour for anyone 23 and over) to their earnings, keeping them just under current inflation rates.
The biggest cheer most likely was from those on the state pension, as the Chancellor announced the Triple Lock would be retained. Each of these will see their pay increase in line with inflation at 10.1% much higher than the average earners wage rise of around 5.5%. However, despite this it is worth noting that a pay rise in line with inflation will only really keep an individual’s purchasing power at the same level as the previous year and with the energy price cap expected to increase from £2,500 to £3,000 from April, and fiscal drag pushing some pensioners into higher tax rates, they could still find themselves worse off.
Benefits claimants will also see a 10.1% increase and for the poorest they’ll be some targeted measures to help them in relation to energy and household support.
Non-domiciled individuals will have been expecting with trepidation some reform of the regime, but for a footnote on share for share exchanges buried in the notes, there was no big announcements here.
The real losers of this Budget are the actual middle-income earners in the £50-£70k budget. These individuals have not seen a ‘tax increase’ but the fixed bands and allowances mean that they will be receiving an ongoing tightening of their purse especially in times of high inflation. Increases in wages push them into a higher rate tax bracket and we still have the injustice of the High-Income Child Benefit Charge starting at £50,000 (before someone is even a higher rate taxpayer).
People earning exactly £150,000, a very small select bunch, will lose out as their benefit in not paying the 1.25% Health & Social care levy is wiped out by the additional tax from the reduction of the additional rate band to £125,140.
People with personal companies will find that it is much more expensive to extract money from their businesses. Dividends rates have increase by 1.25% from last year (whereas this increase was scrapped for earnings) and now the tax-free threshold decreasing from £2,000 to £500. This coupled with increasing corporate tax rates may see traders seeking to operate outside of companies.
Investors will be hit by increased taxation with the changes implemented for both dividends (dividend allowance reduced to £1,000 from April 2023 and reducing to £500 from April 2024) and capital gains (annual exempt amount reduced from £12,300 to £6,000 in April and to £3,000 from April 2024). Those measures may also have the unintended consequence of bringing people into self-assessment.
Those investors with deferred capital gains will also be caught if planning to crystallise these gains at a later date, though they’ll surely be happier that there was no change in the tax rates.
The changes may also mean that second property owners (accidental landlords) will be more reluctant to sell properties with the tax-free annual allowance dropping from £12,300 to £6,000 from April 2023 and then to £3,000 in April 2024. This could result in an individual paying £2,604 more in Capital Gains Tax on a disposal.
In reality, we all lose as fiscal drag will mean that all earners will see a higher percentage of their income being taxed between now and April 2028. With the personal allowance, national insurance thresholds and basic rate band now being frozen for the next five years and inflation sky high, workers may find they are pushed into higher rate bands and receiving much less from any future pay increases.
Would you like to know more?
If you have any questions about the Government’s Autumn Budget Statement and how it may impact you, please get in touch with your usual Blick Rothenberg contact or Paul Haywood-Schiefer using the details on this page.