Update on 19 October: Barely three-and-a-half weeks after Kwasi Kwarteng’s mini-budget, there’s a new Chancellor, Jeremy Hunt, and an almost complete reversal of its pledges.
What’s changed?
- The proposed 1% cut in the basic income tax rate from April has been reversed. This means that the basic rate stays at 20% “indefinitely”.
- The ‘additional’ tax band will no longer be removed. This means that the 45% rate (for earnings of £150,000 and above) remains.
- The recent 1.25% tax increase for dividends won't be reversed, so dividend rates stay where they are.
- The cancellation of the upcoming increase in Corporation Tax has itself been cancelled, so it will go up to 25% in April 2023 as originally planned.
What’s still going ahead from the mini-budget?
- The recent 1.25% increase to National Insurance will be removed on 6 November 2022.
- Stamp duty has an increased threshold of £250,000 (£425,000 for first-home buyers), already in place.
- The freeze on energy bills stays – but only for six months instead of the two years originally pledged (to be reviewed in April 2023).
You can find the original summary of the 23 September mini-budget below.
Hailed as the biggest set of tax cuts since 1972, the autumn mini-budget on 23 September – and the first outing for new Chancellor, Kwasi Kwarteng – claims to save taxpayers £45 billion by 2027. Before it was basically ripped up by the new Chancellor a few weeks later, what were its key points?
Personal taxes
- The basic income tax rate drops from 20% to 19%, a year earlier than planned. That extra penny in the pound is expected to save an average £170 a year for 31 million people.
- High earners paying the 45% rate (for £150,000 and above) are set to benefit from the removal of the ‘additional’ tax band. Instead, the higher rate of 40% will apply to any income over £50,270. Higher earners will also become eligible for the £500 personal savings allowance.
- The government confirmed the day before the budget that the recent 1.25% increase to National Insurance will be scrapped from 6th November. This will give more back to around 28 million people, from £93 a year for those earning £20,000 to £1,093 for those on £100,000.
Altogether, the income tax changes (not applicable in Scotland) and National Insurance U-turn are set to save almost 30 million taxpayers over £500 in 2023-24. However, because personal tax-free thresholds are still frozen until 2026, the benefits of these measures are likely to be diluted. As wages increase, more people are expected to be pushed into the higher tax brackets, capturing a larger proportion of their income each year.
Stamp duty
The good news for downsizers, or anyone buying a home, is that the threshold for stamp duty will double to £250,000 from 23rd September (England and Northern Ireland only). It’s even better for first-time buyers, who won’t pay anything under £425,000, and can also now qualify for tax relief on properties valued up to £625,000 instead of £500,000. For anyone helping to get the next generation on the property ladder, things just got a bit easier.
These permanent measures are expected to remove over 200,000 homebuyers from the stamp duty net, and will provide welcome relief in the face of rising mortgage interest rates.
Other measures
Corporation Tax will no longer be increased from 19% to 25% in April, cancelling the £4.5 billion haul this was due to bring in by 2025. The idea is that this will help boost private sector investment, putting £19 billion back into the economy to boost growth and dampen down inflation.
Like National Insurance, dividends will have the 1.25% tax increase reversed in November. This is set to save investors and some self-employed workers an average of £345 next year.
A less publicised measure was a tax cut for additional rate dividends, dropping from 39.35% to 32.5% from April. This will benefit investors who have shareholdings held outside of tax wrappers (like pensions and ISAs), as well as limited company directors and some buy-to-let landlords.
A freeze on energy bills is now in place to provide some relief and help reduce inflation. Costing the government £60 billion over the next six months, the price guarantee and previously announced £400 support scheme will reduce estimated bills for a typical household by at least £1,400 over the next year.
For better or worse, there were no announced changes to pensions, Capital Gains Tax or Inheritance Tax.
Looking forward
Overall, the tax cuts will be welcome news for millions of taxpayers who’ll benefit from the upcoming boost in their earnings. However, this is within the context of a cost-of-living crisis. With inflation lingering at a 40-year high, income will have to be spread thinner on everyday expenses, especially increased energy costs over the winter. And rising interest rates means mortgages and loans will cost more to repay.
As always, the best way to navigate challenging times is by making sure your finances are in the best shape possible. Contact us if you’d like to arrange a review.
