With the government aiming to close an estimated £53bn gap in the public finances against the backdrop of the cost-of-living crisis, no one was surprised by the widely predicted ‘stealth taxes’ of Chancellor’s Autumn Statement.
Here, we take a closer look at the implications of the changes to personal taxation announced by Jeremy Hunt on November 17th:
Income Tax Personal Allowances
The freezing of Income Tax Personal Allowances until April 2028 was the headline from the Autumn Statement, with the Office for Budget Responsibility estimating the freeze will pull 2.6 million more people into higher tax rates, while also creating 3.2 million new taxpayers. Currently, around 660,000 people in the UK pay the 45p tax rate. However, with the threshold falling from £150,000 to £125,000, membership to this formerly exclusive club will be considerably expanded.
Dividend Income Allowance
In a move widely predicted by experts, effective from April 2023, Dividend Income allowance has been reduced from £2,000 to £1,000. In April 2024, this will reduce further to £500. As Dividend Allowance has been fixed at £2,000 for the past five years, having previously being set at £5,000, this reduction means more people will now be required to pay this tax on investments.
Capital Gains Tax
In April 2023, the Capital Gains Tax Allowance will more than half to £6,000 from its current threshold of £12,300. In April 2024 this will further reduce to £3,000, in a move that will have repercussions for landlords and second homeowners and those selling business assets or shares.
The Inheritance Tax nil rate band is frozen at £325,000 until April 2026. Bearing in mind that this threshold has not increased since 2009, it’s now more important than ever to put plans in to help mitigate inheritance tax liability and its negative effect on the next generation.
The Pension Triple Lock will be honoured for those receiving State Pension after April 2016. Those entitled to State Pension before that date will receive an increase aligned to the Consumer Prices Index in September 2022. Despite predictions that the lifetime allowance would be frozen at £1,073,100 for a further two years to 2027, this was one possible freeze that did not materialise.
ISA allowances remain at £20,000 per year and Junior ISA allowances will be fixed at £9,000 until further notice. Given the increased Dividend Income and Capital Gains Tax burdens, it’s now more important than ever to ensure ISA benefits are maximised before allocating elsewhere.
Independent tax advice, tailored to you
As the tax burden on investors increases in an uncertain global economic climate, it’s never been more important to plan prudently for a healthy financial future.
Westerby Investment Management offer personal taxation advice as part of our comprehensive independent financial advice service. As well as your unique personal financial situation, our expert advisers will carefully consider your approach to risk, health and financial goals when assessing your needs.
All calls to and from our landlines and mobiles may be recorded to meet regulatory requirements.
Westerby Investment Management Limited (125286) is Authorised and Regulated by the Financial Conduct Authority. The contents of this blog are for information only and must not be considered as financial advice.