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In his 2022 autumn statement, delivered in parliament on 17 November, chancellor Jeremy Hunt announced a series of measures that will affect the finances of individuals around the UK.
Most changes will come into place in the next tax year, beginning on 6 April 2023. If you wish to manage your finances closely in the coming year, especially in light of the cost of living crisis, it is important to understand how these announcements could affect your wealth.
Continue reading to find out how the autumn statement could affect your finances, plus our reflection on the political direction of these announcements now a new chancellor has been appointed.
An increased number of earners will pay additional-rate tax
One of the most headline-worthy changes Hunt announced was a reduction to the rate at which earners will pay additional-rate (45%) tax. This policy comes after former chancellor Kwasi Kwarteng moved to abolish the rate altogether in September – a decision that was quickly reversed.
Currently, those earning more than £150,000 a year will pay 45% Income Tax. From April 2023, the amount will reduce to £125,140. The 45% rate of tax will remain the same.
The Telegraph reports that this move will push 2 million earners into a “60% effective rate of tax” – as those earning between £100,000 and £125,140 will no longer benefit from the full Personal Allowance, either.
So, if you earn between £125,140 and £150,000, you could be paying additional-rate Income Tax for the first time from April 2023 onwards.
2 key unearned income allowances will be reduced in 2023 and 2024
If you earn income from selling assets or taking dividends, this is known as “unearned income”.
In his autumn statement, Jeremy Hunt clamped down on two key tax breaks for this form of income: the Capital Gains Tax (CGT) annual exempt amount, and the Dividend Allowance.
1. The CGT annual exempt amount is the amount of profit you can earn from selling certain assets (including additional properties, vehicles, and non-ISA investments) without paying tax. The allowance currently stands at £12,300. In April 2023 it will reduce to £6,000, and in April 2024 it will shrink again to £3,000.
2. The Dividend Allowance is, as its name gives away, the amount you can take in dividends without paying Dividend Tax. The rate as of 2022/23 is £2,000 – but will be reduced to £1,000 in 2023/24, and £500 in 2024/25.
If you earn a significant portion of your income from asset sales and dividends, it is important to know that you will likely pay increased tax on these earnings from April 2023.
Contact your financial planner to discuss how you can make the most of your current allowances before they drop, and prepare for the increased tax liability to come.
The Inheritance Tax nil-rate bands are now frozen until 2028
When you pass away, your beneficiaries may pay Inheritance Tax (IHT) on your estate, depending on the value. The rate stands at 40% as of 2022/23.
There are, however, two key “nil-rate bands” applying to both wealth and property left to the next generation, which, when combined, equal £500,000. Within this amount, your loved ones generally won’t pay IHT.
Previously, these nil-rate bands were frozen at their current rates until 2026 by former chancellor, now prime minister, Rishi Sunak.
In the autumn statement, the chancellor extended this freeze to 2028.
So, it could be wise to discuss reducing the value of your estate over time with your financial planner. If you pass away in the coming few years, your loved ones could pay additional IHT on your estate, as the nil-rate bands will not be increased in line with inflation.
The Energy Price Guarantee has been extended
Of course, the subject of energy prices has been in the news since the start of 2022, when energy regulator Ofgem increased their energy price cap a number of times throughout the year.
Since then, the government has vowed to help prevent a further increase in household energy bills, introducing their Energy Price Guarantee. This guarantee claims that between 1 October 2022 and 1 April 2023, the average UK household won’t pay more than £2,500 a year in energy bills.
In the autumn statement, Hunt announced that the Energy Price Guarantee will remain in place from April 2023 for 12 months – but its average amount will increase to £3,000 for that time.
If you are preparing to shoulder high energy costs in the coming year, this guarantee could provide some peace of mind that your bills may not soar to new and unexpected heights.
Kwasi Kwarteng’s Stamp Duty Land Tax reductions will return to their previous rates in 2025
In September’s mini-Budget, former chancellor Kwasi Kwarteng announced changes to the amount of Stamp Duty Land Tax (SDLT) paid on the purchase of residential property.
Importantly, he increased the thresholds under which you pay no or little SDLT, meaning most homebuyers will pay less SDLT in the coming years.
The below table shows the new rates put in place by Kwarteng in the autumn mini-Budget.
Previously, homebuyers would begin paying SDLT on amounts over £125,000, unless the property was their first home.
Source: HMRC
In addition, the below table shows the new SDLT rate for first-time buyers in England. Under previous rules, first-time buyers would begin paying SDLT on amounts over £300,000.
Source: HMRC
If you are helping a loved one onto the property ladder in the near future, you could shave valuable pounds off the overall cost of buying a home.
Crucially, in his autumn statement, Hunt announced that these changes – which were once thought permanent – will only be in place until April 2025. After that, SDLT will return to its previous rate.
The State Pension triple lock will go ahead as planned
In happy news for many retirees, the State Pension triple lock will be reinstated in 2023, Hunt announced.
While political turbulence and the rising rate of inflation made many sceptical about whether the government would commit to the triple lock, the chancellor confirmed he will honour the rise.
Now, those receiving the new State Pension will see a welcome boost to their payments of just over 10% from April 2023. People taking the full new State Pension will receive an additional £900 a year under the measure.
What’s more, Pension Credit will rise by 10.1% in April and will continue to be uprated in line with inflation.
If you are set to retire soon, or are already taking your State Pension, this news could bring you peace of mind as we head into 2023.
3 additional autumn statement announcements you should pay attention to
Along with these major shifts in the financial landscape, here are three further changes to be aware of as we head into the next tax year.
1. Hunt increased the windfall tax for UK oil and gas companies from 25% to 35%. The rise will remain in place between January 2023 and March 2028.
2. The National Living Wage will see its largest-ever increase in April 2023. National Living Wage earners over 23 will now receive £10.42 an hour – a 9.7% increase.
3. Corporation Tax will rise by 6 percentage points for some businesses. This measure was announced earlier in the year and confirmed by the chancellor in the autumn statement.
Our reflection on the political direction of the autumn statement
After the autumn mini-Budget, the autumn statement of 17 November was both a reality check and a return to fiscal normality.
Nobody will really be surprised by the deep, across-the-board tax rises and freezing of allowances creating severe fiscal drag.
What really caught the eye was the drastic reduction in unearned income over the coming years, which makes good planning around the purchase and sale of funds outside of an ISA all the more important.
We were pleased to see that ISAs and pensions were largely untouched, and the reduction of the additional-rate tax threshold to £125,140 creates a planning opportunity for some.
The further freezing of the IHT thresholds compounds the existing problem experienced by many, and means that family gifting strategies and making use of allowances and exemptions should be revisited.
Get in touch
To discuss how the autumn statement measures could affect your wealth in 2023 and beyond, contact us. Email info@athertonyork.co.uk or call us on 0208 882 2979 for more information.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.