After a controversial mini budget in September, new Chancellor Jeremy Hunt announced a series of measures in his Autumn Statement on 17 November.
The update contained a raft of measures that will affect households – some quickly and directly and others obliquely, affecting your wallet over time.
Here is a breakdown of everything you need to know that is changing.
Income tax – the thresholds at which we pay income tax have been frozen for longer. This means the personal allowance will stay at £12,571 and the higher rate of 40% which kicks in at £50,271 will remain until 2028 at least. The 45% additional rate has been lowered from £150,000 to £125,140. This will take effect in the new tax year on 6 April 2023.
Dividend allowance – the dividend allowance will be slashed by 50% – from £2,000 to £1,000 from the new 2023/24 tax year. It will then be cut even further to just £500 in April 2024.
Capital gains annual exemption – the capital gains tax (CGT) annual exemption is being more than halved from £12,300 to £6,000 from the new tax year. This will be halved again in April 2024 to just £3,000.
National Insurance – the current thresholds, like income tax, will stay at the same level until 2028.
Inheritance tax – the thresholds for inheritance tax (IHT) will stay the same until April 2028. The nil-rate band for IHT is £325,000 with an additional residence nil-rate of £175,000. The taper for the residence nil-rate band kicks in at £2 million.
Stamp Duty – Stamp Duty Land Tax (SDLT), which was cut in the mini budget in September, will retain the new nil-rate threshold of £250,000 for normal buyers and £425,000 for first-time buyers. But this will only remain in place until March 2025 at which point the thresholds will revert to their previous levels of £125,000 and £300,000 respectively.
How will the changes affect your wealth?
As mentioned above the changes to financial rules by the Government will have some quick effects on your money, while others will take more time to be felt.
For instance – the dividend allowance and CGT exemption cuts will be felt quickly, and measures will need to be considered to mitigate the impact. With little time left to benefit from the higher allowances, anyone with tax-free allowances in pensions or ISAs should consider using those up if possible.
The changes to income tax – or lack of changes – have a more oblique impact on your earnings. While there are no changes to the thresholds, this will mean that whenever you receive a pay or income increase you won’t feel as much benefit as you might have previously.
This is especially pernicious in a high-inflation environment as pay rises tend to be pushed higher to meet living costs. This just serves to send more money towards the Treasury, especially as people are tipped into higher tax bands.
Other moves – such as the sunsetting of the Stamp Duty Land Tax (SDLT) nil-rate band levels – have been criticised by experts who warn that setting an end-date for such measures in the future sets a target time for sellers and buyers which could cause chaos in the market.
What’s clear from these measures is that managing money and wealth isn’t getting easier, making financial advice more relevant than ever. Don’t hesitate to get in touch if you want to discuss your options.