The autumn statement delivered by Chancellor Jeremy Hunt saw a return to tradition: a reassuringly hearty main course dominated by old-style approaches to tax planning and fiscal book-balancing designed to satisfy the financial markets, with what remained of the earlier so-called Mini Budget pushed to the side of the plate as leftovers.
Where previous chancellor Kwasi Kwarteng was enthusiastic in setting out his radical plans in the Mini Budget in September, Jeremy Hunt’s delivery of the House of Commons two months later was a sombre and carefully calculated response designed to reassure markets.
With the continuing pressure from the conflict in Ukraine, the Chancellor outlined his plans to balance the books in the country’s finances, against a backdrop of higher levels of government debt due to the economic impacts of the pandemic and current energy crisis, with debt interest spending expected to reach a record £120.4 billion this year.
If you’re confused and unsure where you stand, you are certainly not alone. First, September’s mini budget overturned or accelerated a number of previously announced policies and tax plans, and now almost everything that was set out in September has been subject to a U-turn or will end on a deadline.
It’s been a dramatic relay race, where the baton has effectively been dropped deliberately on handover between chancellors. Just one example is the top tier income tax rate of 45p on income above £150,000: this was scrapped in the mini budget, only for it to be reinstated in response to the immediate outcry. Now, the autumn statement has gone even further, by reducing the threshold to £125,140, so increasing the number of tax payers who will be drawn into this additional rate tax bracket.
Also subject to roll-back is the basic rate of income tax, which was to be reduced from 20% to 19%, but this will not go ahead. And the savings on stamp duty (SDLT) announced in September will now be temporary, reverting to the previous levels from April 2025, taking the nil rate band back to £125,000 from its present level of £250,000. For first time buyers, there will be no stamp duty on the first £425,000 of the purchase price until the 2025 deadline, after which it will revert to £300,000, and the overall value of property on which first time buyers can claim relief will also return from its present level of £625,000 to £500,000.
One area that was hotly anticipated for overhaul was inheritance tax (IHT), but the nil rate band has been frozen for a further two years, in line with many other tax allowances. Originally set in 2009, and previously fixed until April 2026, the nil-rate band for IHT will now remain at £325,000 until April 2028, the residence nil-rate band at £175,000, and the residence nil-rate band taper will continue to start at £2 million.
Also on hold until 2028 are income tax thresholds and allowances, which were originally frozen for four years until 2026. This will see the personal allowance stay at £12,570; the 20% basic rate tax at £12,570 to £50,270; and the 40% high rate on £50,270 to £149,999, with this ceiling changing in April following the new lower starting threshold announced for additional rate tax payable at 45% of £125,140.
And the VAT registration and deregistration thresholds will also remain on hold for an additional two years to 2028, with registration required when turnover hits £85,000.
While we are unlikely to see any significant changes over the plans set out in this autumn statement, we continue to face exceptional economic circumstances, so it remains vital to keep abreast of what is coming up, and when, and what opportunities there may be for tax planning if action is taken at the right time.
Other key takeaways for employers and business owners:
- Employers will have to fund an increase in the National Living Wage from £9.50 to £10.42 for employees aged 23 and over from April 2023 to support the cost of living for the lowest paid. Slightly below inflation at 9.7%, the rise is larger than average wages are expected to rise during the period. Other national minimum wage rates for apprentices and those aged between 16 and 20 will also rise by 9.7% and the 21-22 age rate by 10.2%. Alongside, the level at which employers start to pay Class 1 Secondary NICs for their employees will be fixed at £9,100 from April 2023 until April 2028, with the Chancellor saying that businesses should play their part in reducing the UK’s debt.
- Those owning second homes or buy to let property, or those investing in shares, who are anticipating a sale in the next year or two may consider bringing forward the timing of the disposal, following the Chancellor’s announcement of a significant reduction in the tax free allowance for Capital Gains Tax (CGT), due when an individual sells an asset and makes a gain on the original price. The allowance will reduce in 2023-24 from £12,300 to £6,000, falling to just £3,000 in 2024-25. Alongside, the Dividend Allowance is to be reduced from £2,000 to £1,000 from April 2023, and to £500 from April 2024.
- To guard against Capital Gains Tax avoidance, from 17 November any shares and securities in a non-UK company acquired in exchange for securities in a UK close company will be deemed to be located in the UK, where an individual has a material interest in both the UK and the non-UK company.
- Landlords and non-residents wishing to take advantage of the extended stamp duty nil rate band will need to complete on purchases before the new end date of 31 March 2025. The additional home surcharge remains at the same level and the higher rate paid for additional homes – whether for secondary use by the buyer or as buy to let properties – will continue to be charged at three percentage points above the standard residential rates. For non-UK residents the non-resident surcharge on residential property will continue at two percentage points above standard residential rates.
- Reforms to Research and Development (R&D) tax reliefs for SMEs have seen the benefits slashed, following reports of abuse and fraud. For expenditure on or after 1 April 2023, the SME additional deduction rate will be cut from 130% to 86%, while the SME credit rate will be cut from 14.5% to 10%. However, on the plus side, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%; also, the qualifying expenditure will be reformed to include data and cloud costs.
- There is also some good news on the business rates front, including a Multiplier Freeze which will hold the business rates multipliers in 2023-24 at 49.9 pence and 51.2 pence, rather than increasing to 52.9 pence and 54.2 pence. Support for eligible retail, hospitality, and leisure businesses is being extended and increased from 50% to 75% business rates relief up to £110,000 per business in 2023-24, and a £600 cap on bill increases for the smallest businesses when they lose eligibility or received reduced SBRR or Rural Rate Relief.
More detail from the Government about the autumn statement is available here.