The Chancellor has given his Autumn Statement. Given the current economic challenges – regarding the pandemic, and the war in Ukraine, and the energy crisis, etc – the statement has, as expected, included a number policies designed to raise the future intake of tax. In relation to person taxation, the key points are as follows:
Capital gains tax (CGT) – reduction of the annual exemption
At present an individual can generate capital gains (net of capital losses) of up to £12,300 each year without needing to pay any CGT. As from 6 April 2023 this will be cut to £6,000. As from 6 April 2024 this will be cut again to £3,000. To put this into some kind of context, the last time the allowance for individuals was even as low as £6,000 (let alone £3,000) was back in 1995-96.
It will remain the case that for the majority of trusts, the annual exemption will be a maximum of half of the applicable annual exemption for individual (eg a maximum of £1,500 as from 6 April 2024).
In addition to the expectation that more CGT will be collected by the Government in the future as a consequence of this reduction, it is also likely that more assets (eg shares) will now be sold in the current tax year with people keen to take advantage of the final year in which the allowance is as high as £12,300. The reduction might also make alternative investment options, such as ISAs and pensions, become even more attractive.
Alongside the above reduction, the reportable proceeds thresholds will be fixed at £50,000 (it is currently set out four times the annual exemption). This means that anyone who generates annual proceeds of more than £50,000, but has no CGT to pay, will still be required to report their sales to HMRC. Anyone who has CGT to pay is required to report regardless of level of proceeds.
Income tax – reduction of the dividend allowance
Currently an individual who receives dividend income is only required to pay income tax on those dividends in excess of £2,000. As from 6 April 2023 this will be cut to £1,000. As from 6 April 2024 this will be cut again to £500.
Income tax – lowering of the additional rate threshold
The level at which an individual begins to pay the additional rate of income tax (which is 45% for all taxable income except dividends) is to be reduced down to £125,140 as from 6 April 2023. It is currently £150,000.
The ability for any individual to raise this threshold through making pension contributions (or gift aid donations) will remain. It will be interesting to see if there is any future increase in such contributions as a result of this threshold decrease.
Income tax – freezing of the personal allowance and higher rate threshold
There are no changes to either of these amounts, however they will both be frozen at their current levels until at least April 2028.
As a consequence of both this announcement and the one above, more people are likely to move up the various tax bands over the course of the next five-and-a-half years, as their taxable income levels increase.
Inheritance tax – freezing of the nil-rate band and residence nil-rate band
As with above, these two bands will be frozen at their current levels until at least April 2028. This means that more people are likely to pay inheritance tax when they die.
That said, the nil-rate band threshold has been frozen at £325,000 since April 2009 anyway. So the continuation of this freeze is of little surprise.
Stamp duty land tax (SDLT) – future reversal of September 2022 tax cut
The SDLT cut which was announced just a few weeks ago (see here), will now only apply until 31 March 2025 – it was originally intended to be permanent. After that date, the previous position will once again apply.
Savings and investments
The above changes to income tax and CGT will invariably make many people think about their future saving and investment choices – even more so given the current rise in interest rates, which can make saving more attractive.
Income and capital growth within a pension or an ISA are not liable to income tax or CGT. Contributions into a pension can potentially attract income tax relief. Therefore, as mentioned, the appeal of both types of investment vehicles is only likely to increase even further going forward. However, there are limits on both. The annual investment into an ISA (or ISAs) is capped at a total of £20,000. With contributions into a pension meanwhile, there are both annual and lifetime limits which can result in the taxpayer being levied with an income tax charge if either limit is exceeded. Individual circumstances are of course very important as well. If anyone is considering taking any action, particularly in relation to pensions, we would strongly suggest that you seek independent financial advice first.
How can Moore Barlow help
If you need advice on any aspect of the changes in the autumn budget and how this may affect your income or capital gains tax then please contact the Moore Barlow Private Wealth team.
Our expert team at Moore Barlow can provide you with peace of mind through supportive legal advice that is tailored to your individual situation.
