The Government announced the ‘mini-budget’ on Friday and, whilst the Chancellor of the Exchequer may have called it mini, there are a few headlines to note. It’s also the biggest tax cut we’ve seen in the UK for decades.
After taking time to digest the changes, with thanks to our partners for providing insight, Ben Slater has put together some of the key points from the announcement. This may affect your financial future and planning in England with the most likely outcome being a slightly reduced income tax bill.
The additional rate of tax of 45% (39.35% for dividends) on income more than £150,000 is to be abolished from 6 April 2023.
The cut to the basic rate of income tax will take place a year earlier than planned, also from April 2023. The rate for both non-savings and savings income will fall from 20% to 19%.
The rate of tax on dividend income is to be cut by 1.25% from 6 April 2023. The rates will return to their pre-April 2022 levels of 7.5% (basic rate) and 32.5% (higher rate) on amounts in excess of the £2,000 dividend allowance. Following the removal of the additional rate, 32.5% will be the highest rate paid on dividends from next year.
There were no new announcements relating to the personal allowance and basic rate band. These remain frozen at £12,570 and £37,700 respectively until 2025/26. This means that the higher rate tax threshold will remain at £50,270 for those entitled to a full personal allowance.
Despite the reduction of basic rate income tax from 20% to 19% from 6 April 2023, pension schemes that operate the relief at source method for claiming tax relief (personal pensions, stakeholders, SIPPs) will still be able to claim 20% basic rate relief until April 2024.
The increase to NI to help pay for social care reforms has been scrapped. The additional 1.25% which was added to the rates of NI for 2022/23 for employees, employers, and the self-employed will be removed from November 2022.
The changes to the thresholds at which individuals (both employed and self-employed) start to pay NI, which were introduced in July 2022, will remain - they're in line with the annual personal allowance of £12,570.
The planned rise in the rates of corporation tax from 19% to 25% from April 2023 will not go ahead. The rate of corporation tax will remain at 19%.
Previous reforms to ‘off-payroll’ working, also known as IR35, will be repealed as part of the Government’s plan to reduce complexity in the tax system. This will take the responsibility of NI and tax payment away from the company engaging the services of a contractor and place it on the contractor themself.
As part of a package of measures designed to ‘get the housing market moving', the SDLT (stamp duty) threshold will be doubled so that no tax will be due on purchases of residential property up to £250,000 in England and Northern Ireland.
This relief is extended to first-time buyers who will pay no tax on purchases less than £425,000 (up from £300,000). These new thresholds will apply immediately.
The mini-budget is a bold statement by the chancellor, and there will be some volatility in markets as investors react. It comes shortly after interest rates were increased by the Bank of England to 2.25% in an attempt to slow down inflation.
Remember, markets will always react to changes and uncertainty, but long-term trends will prevail. The image below from the Behaviour Gap is a useful reminder of this!
There’s a lot going on in the world at the moment – if you’d like to discuss your finances and start to plan your future, please do not hesitate to contact us.