Autumn Statement 2022: Personal tax changes

Alexandra Docherty

Alexandra Docherty

Partner and Head of Private Client Tax

The Autumn Statement 2022 was awaited with keen interest, given the fallout following the ‘mini-budget’ which proved not so mini back on 23 September. That budget has been in the headlines ever since, given those radical tax changes proposed at the time and now largely reversed. We will see how markets react to these latest tax announcements, which set out to balance the books and create more economic stability.   

As always there was much speculation as to the content of the Autumn Statement, but what was assured is that we would have to face tax pain as part of getting UK Plc back in the black. 

As predicted the Chancellor has looked to bridge the gap with a number of new tax revenue generating changes and of course the favoured stealth raid by freezing various tax thresholds over an even longer term. 

So what are the key tax takeaways from the Autumn Statement for the individual? 

  • Reducing the additional rate band threshold 

The additional rate threshold of Income Tax (45%) will be lowered from £150,000 to £125,140 from 6 April 2023. It seems likely that the Scottish Government will make similar changes in the Scottish Budget on 15 December 2022. The projection from the UK Government is that this lowering of the additional rate threshold will generate circa £420 million in the 2023/24 tax year, increasing thereafter to circa an £800 million tax revenue generator per annum. 

Provided that an individual has sufficient net relevant earnings and pensions’ annual allowance, it remains the case that pension contributions may prove to be particularly tax efficient for those with income a little in excess of £100,000, as they begin to lose their personal allowance at that level and suffer an effective Income Tax rate of 60% (61.5% in Scotland). On top of this, there may also be employee National Insurance Contributions of 2% to factor in. The changes made from 6 April 2023 will also make pension contributions more attractive for those earning between £125,140 and £150,000 now the rate has increased to 45% and, depending on whether the Scottish Government follows suit, this could see a 46% Income Tax rate on earned income and rental income for those Scottish tax residents earning over £125,000. 

The Chancellor also announced state pension payments and means-tested and disability benefits were to increase by 10.1%, in line with inflation. 

  • Stealth raid number 1 – Freezing of the UK Income Tax basic rates and thresholds 

It had already been announced that the planned cut from April 2023 in the UK basic rate of Income Tax to 19% would not go ahead. The Autumn Statement confirmed this. 

Currently the UK basic rate tax band (20% rate) at which you start to pay Income Tax kicks in on income over £12,570 and the UK higher rate (40% rate) at £50,270. The UK Government have announced that rates will be frozen until 2027/28. This will in turn drag millions into higher rates of Income Tax given the impact inflation is already having on wage rises for example. Take someone on a £50,270 salary - this could see their Income Tax bill rise by a total of circa £1,500 in 2023/24 (if we assume a wage increase of 7.5%) versus 2022/23. This is broken down as circa £189 additional cost due to the freezing of the personal allowance, £750 in respect of the freezing of the basic rate band, with the balance being tax you would suffer in any case on additional income in the basic rate band. 

Of course, taxpayers who are resident in Scotland pay the Scottish rate of Income Tax on their non-dividend and non-savings income. For example, the Scottish rate of Income Tax would apply to employment income, earnings from self-employment and rental income. The Scottish Government will deliver their 2023/24 Budget on 15 December 2022 where they will announce any changes to the Scottish rates of Income Tax. We wait to see what changes may apply in Scotland, for Scottish resident taxpayers the overall UK tax position may become ever more complex.  

  • Stealth raid number 2 – National Insurance Contributions (NICS) - freezing of thresholds 

The level at which employers start to pay 13.8% of Class 1 NIC contributions for their employees (the Secondary Threshold) will be fixed at £9,100 of earnings from April 2023 until April 2028. This measure alone is expected to raise £3bn in 2023/24 and then over £5bn a year from 2024/25. 

The UK Government will fix the Primary threshold (currently £12,570) - this being the level of earnings over which you pay NIC - at its 2022/23 level until 5 April 2028. For earnings above £50,270, the National Insurance rate for employees falls from 12% to 2% and this rate will also be frozen until 5 April 2028. However, given upward wage pressures, the freezing of this band is a positive as more earnings in future will fall at a 2% NIC rate.   

For 2023/24, the Class 2 rate will be £3.45 per week, and the Class 3 rate will be £17.45 per week.  

  • Stealth raid number 3 – Freezing the inheritance tax threshold 

The inheritance tax nil-rate band, the level at which no Inheritance Tax is payable, will remain at £325,000 until 2027/28. Previously this had been frozen until 2025/26. This means more individuals will be brought within the inheritance tax net on death. Currently every individual has a nil-rate band of £325,000 and they also can obtain a maximum £175,000 extension to this nil-rate band where they qualify for the residence nil-rate band, i.e. where a family home is passed on to direct descendants, such as children and grandchildren. Therefore, a married couple/civil partnership can obtain up to £1m of nil-rate band between them, thereafter it’s a 40% IHT rate unless other reliefs and exemptions apply. The £325,000 nil-rate threshold has been at this level since April 2009. As time passes and the rate remains unmoved the benefit of it is being eroded by inflation. 

  • Stealth raid number 4 – Reducing the dividend and Capital Gains Tax allowances 

The Income Tax dividend allowance is currently £2,000 per annum. This means you can earn up to £2,000 of dividend income at a 0% tax rate, albeit the level of income is taken into account in determining total income levels for the Income Tax bands. This 0% rate on up to £2,000 of dividend income will reduce to £1,000 from April 2023, and to £500 from April 2024. 

The Capital Gains Tax (CGT) annual exemption is currently £12,300. So in a year, if an individual has gains arising on a disposal of an asset of less than £12,300 no CGT is incurred. For gains in excess of £12,300 currently, these are taxed at up to 20% (28% if it is the disposal of residential property). This tax free annual exemption will reduce to £6,000 from April 2023 and to £3,000 from April 2024. This will also affect UK Trusts who already get a reduced annual exempt amount (50% of the individual annual exempt amount). The impact of the reduced allowance will be relevant to those selling UK residential property over the next few years as there is a 60 day requirement to file a residential CGT return and pay the CGT over to HMRC. If a gain was covered by the CGT annual exemption, it was not necessary to file a residential CGT return. The reduced exemption will therefore drag more taxpayers into having to pay CGT and file a CGT return. 

  • Stealth raid number 5 - SDLT nil-rate threshold – temporary rather than permanent change 

It was announced in the ‘mini-Budget’ that the SDLT nil-rate threshold would increase to £250,000 (from £125,000) for all purchasers of residential property in England and Northern Ireland. First time buyers would have a nil-rate threshold of £425,000 (up from £300,000). The maximum purchase price for which First Time Buyers’ Relief can be claimed was increased from £500,000 to £625,000. This will now be a temporary SDLT reduction, and will remain in place until 31 March 2025. 

SDLT is devolved to both the Scottish and Welsh Governments, who operate their own land tax rates, bands and reliefs. 

Other tax changes 

  • Company car and van benefits and vehicle excise duty 

Company car tax rates and the appropriate percentages for electric and ultra-low emission cars emitting less than 75g of CO2 per kilometre will increase by 1 percentage point each in 2025/26, 2026/27 and 2027/28 (subject to maximum limits for both types of car). The company car tax rates for all other vehicles bands will be increased by 1 percentage point for 2025-26 up to a maximum appropriate percentage of 37% and will then be fixed in 2026-27 and 2027-28. 

From 6 April 2023, the van benefit charge and both the car and van fuel benefit charges will increase in line with CPI.  

From April 2025, electric cars, vans and motorcycles will begin to pay VED in the same way as petrol and diesel vehicles.   

Other announcements 

As previously announced, the annual investment allowance will be set permanently at £1m from April 2023. 

The Government announced that they will introduce legislation to prevent tax avoidance in cases where shares in a UK close company are exchanged for shares in a non-UK company. This is effective immediately. 

Get in touch

Read the rest of our Autumn Statement analysis on our Budget Hub, and for more information or to discuss any of the announcements, please don't hesitate to get in touch with me.

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