The Autumn Statement: top implications for individuals

The Autumn Statement looked to protect the most vulnerable in society from the impact of rising inflation and the resulting cost-of-living crisis, passing on that burden to middle and high earners.

Although the Chancellor has not directly raised personal taxes, the impact of freezing or lowering tax bandings and allowances will have a huge impact on the taxpaying public, particularly at a time when household costs are rising across the board, along with inflation.

Daniel Grainge, Partner and Head of Tax at Kreston Reeves said: “Whilst in his Autumn Statement the Chancellor went to great pains to avoid mentioning tax increases, the freezing of income tax thresholds, the lowering of the higher rate of income tax, taxing electric vehicles will to many feel like a tax increase.”

Here are our top implications for middle and high-earning individuals.

Additional rate tax threshold  

Those who earn between £100,000 and £125,140 will continue to pay an effective tax rate of 60% as their personal allowance is eroded, but from 6 April 2023, any earnings above £125,140 will be taxed at the additional rate of 45%. This is down from the current £150,000 starting point and will mean an increase of £1,243 in tax burden for those with income over £150,000. If your income is in the form of dividends, the increase will be even greater at £1,392. The accelerated payment of bonuses and or dividends could help save some tax for higher earners, ahead of 6 April 2023.

Capital gains

Those with chargeable assets will face falling into or higher capital gains tax charges, as the annual exempt amount will decrease from the current £12,300 to £6,000 in 2023/24 and then £3,000 in 2024/25. Once again, those individuals with small gains on shares and other investments will feel the pinch. It may, therefore, be worthwhile considering bringing forward disposals to take advantage of the current £12,300 rate where practical to do so.

Dividend allowance

There were rumours that the dividend allowance, which currently stands at £2,000, would be withdrawn. Although the allowance has been singled out for a reduction, it will not be phased out completely. Instead, from 6 April 2023, it will drop to £1,000 and from 6 April 2024, there will be a further reduction to £500. Any company shareholders should always try and utilise their allowances as part of their overall remuneration strategy.

Freezing of personal allowance and higher rate band

Those on lower earnings will feel a significant squeeze in real terms as the Chancellor confirmed that the personal allowance will remain at £12,570 and the higher rate threshold at £50,270 until 5 April 2028, an extension of two years on the original 5 April 2026. With inflation running at 11.1%, this will undoubtedly drag a significant number of taxpayers into basic, higher and additional rate tax bands over the coming years.

National Insurance

The current National Insurance thresholds will be frozen, although it is worth noting that the threshold for Primary (employee’s) Class 1 National Insurance was raised from £9,880 to £12,570 with effect from 6 July 2022.

Inheritance Tax

The Inheritance Tax threshold will remain at £325,000 until April 2028, meaning that it will have been at the same level for a staggering nineteen years. During that time the average UK house has risen from £162,000 to £292,000, drawing more people into the Inheritance Tax net.

Divorcing couples

The proposed changes to the rules on divorcing couples are now confirmed. From 6 April 2023, couples will have three years to transfer assets after separating and take advantage of the no gain/no loss tax treatment that married couples are afforded. If the transfer is part of a formal divorce agreement, the couple will have unlimited time. If one of the parties moves out of the former marital home but has retained a financial interest, HMRC will allow an extended claim for main residence relief to be made at the point that the home is eventually sold.

If you would like further information on how the Autumn Statement will affect you, please get in touch with our team.