Blog - 17/11/2022
The Autumn Statement – welcome restraint
The Chancellor, Jeremy Hunt, unveiled his Autumn Statement earlier today.
It was clear that the government’s new fiscal policy was focused on managing inflationary pressure and providing reassurance to the City that the UK would be able to support its borrowing commitments in the short to medium term. In addition, there was praise for the Bank of England and a commitment to preserve the bank’s mandate, contrary to a policy floated by the former Prime Minister, Liz Truss.
The unfunded tax cuts set out in the previous Mini-Budget created uncertainty and negative market sentiment. In contrast, the announcements made by the Chancellor today were focused on altering bandings and freezing / cutting some allowances rather than changing headline tax rates. Whilst these changes represent very real tax increases, they do not represent a significant shift in the current personal tax environment.
A summary of some of the key changes that will affect individuals is below:
- Additional tax rate band threshold cut – the level at which taxpayers will begin paying the additional rate of tax (45%) will be cut from £150,000 to £125,140.
- Freeze to tax thresholds – the tax threshold freeze has been extended from 2026 to May 2028.
- Inheritance tax nil-rate band – the current nil-rate band will remain until May 2028.
- Annual exempt amount for CGT reduced – the annual exempt amount for CGT will be cut from £12,300 to £6,000 from April 2023 and £3,000 from April 2024.
- Dividend allowance – the tax free amount of dividend income will be cut from £2,000 to £1,000 and will then be further reduced to £500 from April 2024.
- Windfall tax on energy firms – tax rates to increase to 35% from 25% from 1st January until March 2028.
- The annual chargeable amounts for the ATED regime will be increased in line with inflation (10.1%) for the 2023-24 ATED charging period which will be a significant increase.
- Additional compliance resource for HMRC – the government is investing a further £79 million across the next 5 years with a view to enabling HMRC to tackle more cases of tax fraud and address compliance risks among wealthy taxpayers.
We welcome the restraint shown by the Chancellor in today’s announcements. Principally concerns around CGT rate increases and changes to the non-domiciled regime now appear unfounded. Whilst it will be key to keep both matters in mind going forward, many individuals will be re-assured that any immediate material change seems unlikely.
Sean Bannister, Head of Tax, had the following comments following the Chancellor’s statement:
“The Chancellor had to demonstrate to both the public and the markets that the current government would seek to tackle inflation pro-actively without creating uncertainty. It seems that this was achieved. The changes made to personal taxes certainly represent an increased tax exposure for most clients, but they are not significant changes, and the majority of people will see the issues of interest rates and inflation as the principal threats to personal wealth. As a general election will have to take place by December 2024 at the latest, and with the current government trailing significantly in the polls, the freezes announced today may not survive a change of ruling party.”
Hetal Sanghvi, Partner, noted the following about increased resources for HMRC:
“HMRC has been seeking to address perceived/actual inefficiencies relating to tax collection with vigour in recent years. It was interesting to read that there will be an increased focus on ‘assessing compliance risk with wealthy taxpayers’. We have seen the repeated use of targeted ‘nudge letters’ dealing with issues where HMRC felt it was likely that there was a significant risk of the under reporting of income or gains, which suggests that they have identified weaknesses in either taxpayers understanding of their obligations, or that the complexity of the relevant legislation has led to failures. This new commitment of funds to address accurate self-assessment reinforces the notion that completion of a tax return is not simply a ‘form filling’ exercise. The merit in seeking specialist advice is more apparent than ever.”
Hazel Johnson, Senior Manager, said:
“The Autumn Statement brings some welcome stability to government finances with tax increases achieved by nibbling round the edges of tax thresholds rather than rate increases or radical changes to the structure of the tax system. Next year’s Budget will offer the government more opportunity for fundamental changes, depending on the performance of the economy in the meantime. From an advisory perspective, it is worth considering whether to lock in any tax advantages on transactions and structures now rather than risk losing them in the medium term. This is a holding and stabilising ‘budget’, not an indication of direction of travel on tax.”
If you have any questions regarding this subject please contact Sean Bannister, Hetal Sanghvi, Hazel Johnson or any member of the Tax team.
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