Budget Update – implications for you.

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• Budget Update – implications for you.

Today the Chancellor, Jeremy Hunt, presented his Autumn Statement, otherwise known as the Autumn Statement 2022. This budget update introduces a raft of measures, commonly seen as ‘stealth taxes’ to help fill the black hole of the reported up to £50 Billion following recent market responses to Liz Truss’s brief term as PM.

As predicted, the Chancellor has kept a number of key tax thresholds, which in effect are tax increases, although Scotland will have to wait until the First Minister responds to this budget to see if she amends any of Scotland’s income tax thresholds.

We have summarised some of the key measures from this autumn budget update that are likely to affect the average person. This will hopefully help you understand what the impact may be on your monthly budget and longer term financial planning.

Income tax and National Insurance

• In England and Wales the basic income tax threshold (the point at which you start paying tax and national insurance) has been kept at £12,570 for an additional two years until April 2028. 
• The higher rate band which kicks in when you earn £50,270 has also been frozen, so this effectively means that as wages rise so will the tax that you pay.   
• The top 45% additional rate of income tax will be paid on earnings over £125,140, instead of £150,000
• The Higher Rate Tax for savings and dividend income will apply UK-wide.
• The tax free Dividend Allowance will be reduced from £2,000 to £1,000 from April 2023, and to £500 from April 2024. This decrease now obliges more savers to submit annual tax returns.
• The married couple’s allowance will increase in line with inflation (September CPI), by 10.1% for the 2023-24 tax year, valuing it at between £4,010 and £10,375 (England and Wales).

Note that none of the above applies to Scotland, which can set its own income tax rates and has different tax thresholds. We will have to wait and see if the First Minister responds to this with any changes to the Scottish tax rates or tax bands expected to be announced in December.

Wages

• From 1 April 2023, the National Living Wage (NLW) (otherwise known as the National Minimum Wage) will increase by 9.7% to £10.42 an hour, for those aged 23 and over.

Business related taxes

• The tax free Dividend Allowance will be reduced from £2,000 to £1,000 from April 2023, and to £500 from April 2024,  on top of the 1.25% dividend tax increase which was introduced in April 2022.  This effectively taxes small businesses who often pay themselves via dividends, and will impact on savers.
• The National Insurance Secondary Threshold will remain at £9,100 until April 2028.
• The VAT registration threshold will remain at £85,000 for two years from April 2024.

Inheritance tax (IHT)

• The thresholds have been frozen for a further two years until April 2028, and are as follows:-
• The nil-rate band will continue at £325,000
• The residence nil-rate band will continue at £175,000,
• The residence nil-rate band taper will continue to start at £2 million.
• Qualifying estates can continue to pass on up to £500,000
• The qualifying estate of a surviving spouse or civil partner can continue to pass on up to £1 million without an inheritance tax liability.

As property values have increased dramatically over the past few years this means that many more families will have to pay IHT because the value of their property upon death (usually the family home) is often more than this sum.

Capitals Gains Tax (CGT)

• Capital Gains tax is paid upon the disposal of assets for example the sale of a second home, buy to let property. or gifting property to a family member.
• The current Capital Gains annual exempt amount is £12,300 for each individual and this allowance will be reduced to £6,000 in 2023 and then lowered again to £3,000 in 2024.

Pensions

Pensioners will be supported.

• The State Pension will be increased at the rate of inflation from April 2023, adhering to the Triple
  Lock commitment.
• The ‘triple lock’ will still apply to State pensions. CPI was 10.1% in September 2022 which was greater than 2.5% and the increases in earnings so the new and basic rate pension will increase by 10.1%.
• 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.

Property purchases (England and Northern Ireland).

• The UK Government is implementing temporary Stamp Duty Land Tax cuts until 31 March 2025 to support the housing market and the hundreds of thousands of jobs and businesses which rely on. it.
• On 23 September 2022, the nil rate threshold of Stamp Duty Land Tax (SDLT) was increased from £125,000 to £250,000 for all purchasers of residential property in England and Northern Ireland
• For first-time buyers the nil-rate threshold was increased £300,000 to £425,000.
• The maximum purchase price for which First Time Buyers’ Relief can be claimed was increased from £500,000 to £625,000.

It will be interesting to see if Holyrood implements a similar raft of supportive measures for the Scottish housing market – it has not always followed Westminster’s lead on this tax.

Duty on electric vehicles will increase

• Vehicle Excise Duty on electric cars, vans and motorcycles will be introduced from April 2025.
• New zero emission cars registered on or after 1 April 2025 will be liable to pay the lowest first year rate of VED of £10 a year which will increase to the standard rate of £165p.a. thereafter.
• zero emission cars first registered between 1 April 2017 and 31 March 2025 will also pay the standard rate.
• The Expensive Car Supplement exemption for electric vehicles is due to end in 2025. New zero emission cars with a list price of over £40,000. New zero emission cars registered on or after 1 April 2025 will therefore be liable for the Expensive Car Supplement for 5 years.
• Zero and low emission cars first registered between 1 March 2001 and 30 March 2017 currently in Band A will move to the Band B rate, currently £20 a year.
• Zero emission vans will move to the rate for petrol and diesel light goods vehicles, currently £290 a year for most vans
• Zero emission motorcycles and tricycles will move to the rate for the smallest engine size, currently £22 a year.

Care cost cap at risk

The planned introduction of a cap on lifetime care costs of £86,000 due to come into effect from October 2023 in England has been delayed for two years, meaning that many elderly people are now continuing to face high care costs bills or even need to sell their home to cover  the cost.  The Scottish Government have not yet addressed this cap but may do so at a later date.  

To find out more about how to plan care cost planning  contact our private client team here.

If the November budget update has made you rethink you’re financial and future situation we may be able to help. Planning ahead can help mitigate against these changes.  If you would like to review your financial arrangements our team of independent financial advisers can help with advice on mortgages, pensions, tax efficient savings and investments to help you make the most of your money.  Find out more and make an appointment for a free initial review here,