Autumn Statement 2022: Personal Tax Round-up

Unlike the ‘mini budget’, the Autumn Statement was less eventful and, thankfully, not full of surprises!

Taxpayers

The freeze on income tax, National insurance and inheritance tax (IHT) thresholds has been extended by two years, until April 2028.

This includes the income tax personal allowance (frozen at £12,570) and the basic and higher rate income tax bands. With increasing wages, this will push a significant number of people into higher tax brackets.

No changes were made to the point at which you start to lose your personal allowance (£100,000) and, therefore, many more are likely to suffer a tapering of the personal allowance and thus a marginal rate of income tax at 60%. In order to mitigate this tax charge, pension contributions will be key. We recommend those with likely income of between £100,000 and £125,140 take advice.

In addition, the IHT nil rate band (currently £325,000) and residence nil rate band (currently £175,000) have been frozen until 2028. More estates than ever will fall within the scope of IHT making succession planning even more crucial.

High earners

The threshold at which the 45% rate of income tax becomes payable will be reduced from £150,000 to £125,140 from 6 April 2023.

For clients with control over the timing of the receipt of income (for example, shareholders and directors of private companies), they may wish to consider accelerating payment prior to 5 April 2023 to secure a lower rate of tax. In addition, we would suggest taking advice regarding the timing and optimal amount of any pension contributions.

 Investors

As well as targeting higher earners, changes are being introduced which impact those with unearned income. As Michael Lapham has explained here, all of these changes make investing in your ISA and pension more appealing.

 Capital Gains Tax (CGT)

The CGT annual exemption will be reduced from £12,300 to £6,000 from April 2023, falling even further to £3,000 from April 2024.  The exemption for trustees will be half of these amounts.

Although any reduction in allowances is unwelcome news, many will be breathing a sigh of relief that the rate of CGT has remained untouched (for now).

This reduction is likely to have a greater impact on clients who are financially dependent on unearned income (for example retirees) and routinely realise gains of up to the annual exemption in order to fund living expenses. Tax efficient future funding may, therefore, need to be reconsidered.

There is also an administrative impact of this change with many more people needing to file Self-Assessment tax returns in order to report a chargeable gain.

 Dividends

The government will reduce the tax-free Dividend Allowance from £2,000 to £1,000 from April 2023, with a further reduction to £500 from April 2024.

This is yet another reason for those with owner managed businesses to reconsider the optimal amount to withdraw from a company by way of a salary and dividend.

To understand how this will affect you and what plans you should put in place to maximise the potential benefits, please contact me or a member of the Private Client team.