With the ink still drying on the ‘mini-budget’ announced by former Chancellor Kwasi Kwarteng, last week saw new Chancellor Jeremy Hunt unveil his Autumn Statement, which in his words was designed to “tackle the cost-of-living crisis and rebuild our economy”.
In his statement, the Chancellor used the phrase ‘difficult decisions’ a total of ten times, and having digested the fine print, we have compiled a brief summary of the decisions that will impact you from a tax and investing perspective.
Currently, the Capital Gains Tax (CGT) allowance stands at £12,300 per person, however from April 2023, this allowance, which has been steadily rising since its inception in 1977, has been cut to £6,000 per annum. And in 2024, the exemption will fall further to just £3,000 per annum.
CGT is a tax applied to the profits from the sale of things like second homes and stocks and shares. And this comes after current PM, and then Chancellor Rishi Sunak announced in his March 2021 budget the allowance would be froze until 2025–26.
Essentially, the cuts mean those paying the top rate of CGT will be paying an additional £2,604 compared to today.
Whilst Hunt has kept the rates of the three dividend tax levels at the current rate, as of next year the tax-exempt allowance will halve to £1,000 before halving again in 2024 to £500.00.
As well as impacting business owners who pay themselves dividends, this cut will also affect those who generate an additional income by investing in the stock market who will see the amount of tax-free gains they can claim eroded significantly.
Income Tax ‘Hokey Kokey’
One of the key points of Kwarteng’s mini-budget was the abolishing of the 45% additional income tax rate for those earning over £150,000. Hunt didn’t just overturn this; he reduced the tax threshold to £125,140.
And having previously been frozen until April 2026, the basic rate Income tax allowance will now remain at £12,570 until 2028. Likewise, the higher rate threshold will stay at £50,270.
Stealth Tax On Inheritance
Of all the tax freezes, it’s perhaps the news that the existing nil rate band of £325,000 for Inheritance Tax (IHT) will now remain in place until 2028 that grabbed the headlines. After many years of house price rises, many commentators already believe the nil rate band to be too low and with inflation and families naturally gathering greater wealth through their lifetime, IHT planning is becoming even more important.
It’s Not All Bad News
After weeks of speculation, the Chancellor announced the state pension triple lock will increase with inflation by 10.1% in April 2023. This equates to a rise from £185.15 to £203.85 a week and is the highest increase on record.
Under the triple lock, the state pension increases each year in line with whichever of these three measures is highest:
- Inflation, as measured by the Consumer Price Index in September of the previous year
- The average increase in wages across the UK
- Or 2.5%
What Should You Do?
To paraphrase the Chancellor, there are some ‘difficult decisions’ and everyone will pay ‘a bit more tax’ but one decision that certainly isn’t difficult is when to start reviewing your investments to ensure they are as tax efficient as possible.
If you are a Skybound Wealth client and you have any concerns following the Autumn Statement, reach out to your adviser in the first instance. If you aren’t a client, you can arrange a complementary consultation call by using the call-back form on this page.