Jeremy Hunt revealed his first Autumn Statement as Chancellor yesterday.
He admitted he has had to make difficult decisions to repair the country’s £55bn fiscal black hole. Decisions which involve many paying more taxes.
He also warned that the UK is already in recession – and that things might get worse before they get better.
To stabilise the UK economy and reduce inflation, the Chancellor announced around £30bn in spending cuts and £24bn in tax rises.
So what exactly has he announced, how will it affect you – and how can we at Continuum reduce the impact on your financial plans?
We will all be paying more tax
The Chancellor was careful to avoid talking about tax rises.
Instead, he followed the example set by Rishi Sunak when he was carrying the red box. Rather than increase the rates of income tax and national insurance he is again freezing the threshold at which people start paying. The freeze will continue for another two years, on top of the existing four, to April 2028.
What this means in practice is that as people’s wages go up because of inflation, the tax they pay goes up as well. It is a ‘stealth tax’, a relatively painless way of getting more from the taxpayer.
Taxes as a proportion of our national income will rise by just over 1% over the next five years, the chancellor said. The proportion of income going to the taxman, our tax burden, is likely to be among the highest for at least 70 years.
Ensuring that you are taking full advantage of all tax concessions and allowances has become even more important. At Continuum we can help you look at your tax liabilities and see if there are savings to be made.
More will pay top rate tax
There are also some real tax increases. The point at which the highest earners start paying the top rate of tax is being lowered from £150,000 to £125,140.
Paying tax at 45% instead of 40% is inevitably going to be unpopular, but there could be scope to reduce the impact of this rise, which means those earning £150,000 or more will pay just over £1,200 more a year.
If you are in the group affected by the rise, it might be possible to use a salary sacrifice plan – by which you divert more money from your salary into your pension – to get back below the top tax threshold.
Talking to a Continuum expert might help you find the solution you need to avoid falling into the top tax bracket.
CGT will increase
Capital Gains Tax (CGT) allowance will fall from £12,300 to £6,000 from next year. From April 2024, it will halve again, from £6,000 to £3,000.
CGT is payable on profits over that figure – at 10% or 20% dependent on your tax bracket – plus an additional 8% if the gain is from residential property.
The reform will particularly come as a blow to landlords, many of whom are already suffering from tax increases.
At Continuum we can find ways to deal with the tax and funding implications, such as asset transfers to spouses and those in civil partnerships.
Dividend tax allowance will be halved
The government is halving the dividend tax allowance, Chancellor Jeremy Hunt announced, falling from £2,000 to £1,000 next year and to £500 from 2024. This will come as a blow to small investors, and especially those who rely on income from their investments.
Making more use of ISAs and pensions may provide some relief - as gains within these are not taxable. At Continuum we can help look at your investment strategy.
Inheritance tax
The budget also included an extension of the freeze on inheritance thresholds, which stays in place until 2028.
The threshold has not kept pace with property prices, meaning that many more people will have to pay Inheritance Tax or IHT.
Inheritance Tax is charged at 40% of an individual’s estate after a £325,000 nil rate band.
With appropriate planning, it is possible for a couple to leave up to £1m of wealth to their children or grandchildren inheritance tax free by using an additional nil-rate band
At Continuum we recommend provision for wealth transfer in any financial planning process. With more families falling into the IHT trap, the extension of the freeze makes talking to our experts all the more important.
Other increases
- Energy firms will be hit with an expanded windfall tax of 35%, up from the 25% already levied. Oil and gas companies' tax will increase from 65% to 75% on profits from UK operations until March 2028.
- Electric vehicles will no longer be exempt from vehicle excise duty from April 2025
- Council tax can be increased by 5%.
- Help with energy bills will also be cut back, with typical bills rising from £2,500 a year to £3,000 from April.
Was there any good news?
Perhaps surprisingly, there was some good news for some people in the budget.
There will be an increase in the National Living Wage from the current level of £9.50 an hour for over-23s to £10.42 from April next year.
Pensioners also have some reason to celebrate. The Chancellor has not changed the triple lock provision, and he confirmed that state pensions will rise by 10.1% from April in line with September's inflation rate.
There will be some extra payments of £900 for those on means-tested benefits, £300 for pensioner households and £150 for those on disability benefits.
Most people will welcome the extra spending announced to support education and the NHS.
What should you do?
Workers, investors, pension savers and even grieving families could all be hit by the freeze on allowances, while 10% increases in state pension and benefits may still feel less than generous with inflation currently above 11%.
The measures in the budget may be painful for all concerned.
At Continuum we know that there are ways to reduce that pain, to help ensure that the impact of tax increases is reduced – and that you can still progress towards your financial goals.
Call us today to discuss how we can help you make the most of your money, whatever the impact of the budget may be.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment or tax strategy, you should seek independent financial advice before embarking on any course of action.
Levels and basis of reliefs from taxation are subject to change and depend upon your personal circumstances.
The value of investments can fall as well as rise and you may get back less than you invested.
