How Will the Tax Changes in the Autumn Statement Affect You?
19.12.2022 , BY Ashley Smokler
In the recent Autumn Statement presented by the Chancellor, Jeremy Hunt, it was announced that, with effect from 6 April 2023, the 45% tax banding that formerly started when an individual’s total income exceeded £150,000pa would be decreased to the level at which personal allowances are lost in full (£125,140). This change will remain in place until at least 5 April 2028, so is something that many more individuals will need to be prepared for. So, not only do you lose your personal allowance, you then get stung by a higher tax rate. The result is that, all other things being equal, overall tax liabilities for those individuals will increase by £1,243 when compared to the current tax year.
A very basic example is as follows:
Tax Year 2022/23 | Tax Year 2023/24 | ||
Total income | £200,000 | Total income | £200,000 |
Basic rate tax on £37,700 | £7,540 | Basic rate tax on £37,700 | £7,540 |
Higher rate tax on £112,300 | £44,920 | Higher rate tax on £87,440 | £34,976 |
Additional rate tax on £50,000 | £22,500 | Additional rate tax on £74,860 | £33,687 |
Total tax liability | £74,960 | Total tax liability | £76,203 |
However, there are a number of simple ways in which an individual can save tax. These include making gift-aided charitable payments and/or pension payments which extend the basic rate band, thus increasing the amount of income to be taxed at 20% and reducing the amount of income to be taxed at the additional rate, saving 25% of the gross gift-aid or pension payment.
Also, whilst not specifically affecting tax rates or band widths, any payments into EIS or SEIS investments attract tax relief at 30% or 50% respectively provided you have paid sufficient tax to cover the tax relief claimed. However, these investments do carry a huge amount of risk, so should only be considered where an individual has excess disposable income and where they are prepared to take the risk of not getting any return for their investment. The advice of an independent financial advisor should also, always be sought when making such investments.
Company Directors have avoided some tax and national insurance liabilities by voting dividends rather than drawing remuneration. However, the annual tax-free dividend allowance (currently £2,000) is being reduced to £1,000 from 6 April 2023 and to £500 from 6 April 2024. So, it would seem prudent to ensure that any dividends to be voted are declared before 5 April 2023 to take advantage of the highest dividend allowance.
One item of planning that you should consider is in relation to capital gains tax. If you are thinking about selling your “second home” or buy-to-let property, you should bear in mind that the Autumn Statement has reduced an individual’s annual CGT exemption from £12,300 to £6,000 with effect from 6 April 2023, with a further reduction to £3,000 from 6 April 2024. Obviously, this reduction may be fairly minor in comparison to the figures involved and should not be the driving force behind any decision but, if it is already something you are thinking about, then it may be an idea to get the deal done and dusted before 5 April 2023 to take advantage of the higher CGT annual exemption. With prices generally rising at the moment, you will not only have a larger gain in the first place, but you will have less annual exemption, increasing the amount of CGT payable and reducing your effective gain.
We recommend that your always ask for advice before making any significant changes which are likely to affect your tax position.