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Rayner my parade! The importance of specialist advice.
Jemma Brimblecombe
For the third time in eight weeks, we have been given a set of tax policies by the government. The fourth chancellor this year gave the statement, while the man who was chancellor at the start of the year sat behind him as prime minister.
While we didn’t count the number of times the word “stable” was spoken today, some might argue we are objectively not in “stable” times right now, though by leaking today’s key announcements ahead of time, Jeremy Hunt did help his case. Nearly all of Mr Kwarteng’s and Ms Truss’s tax policies already feel very distant however.
The chancellor’s new tax policies will likely be bombarding your inbox from several directions. Mr Hunt is asking for “more from those who have more” and the top rate of income tax will now begin at £125,140 (down from £150,000), meaning the effective tax rates above £100,000 are becoming ever harsher. Above £100,000, an effective income tax rate of 60% still applies (due to loss of personal allowance), but now, at the point that ends (£125,140 – the reason the new threshold for 45% income tax begins at this level) higher earners will pay 45% instead of 40% income tax.
As tax thresholds are being frozen and inflation causes employers to need to pay more for their employees to maintain the same spending power, more earners will cross the £100,000 earnings threshold. Those with children who lose the government’s support at the £100,000 cliff-edge will be hit harder still, meaning for many, if their finances allow it, there is a persuasive case to try and keep taxable earnings below £100,000 through pension contributions and charitable giving (both of which reduce your income for tax purposes). As I have blogged before, anyone with earnings of £110,000 and two children (for example) would take home more cash after tax and pension contributions if they pay £10k into their pension than if they didn’t.
For those who receive income from shares as well as salary (for example, many business owners), the dividend allowance is to reduce from the existing £2,000 a year to £1,000 next financial year and £500 in 2024-25. For those able to receive capital instead of income, while the CGT rates haven’t changed as many feared, the thresholds are also frozen (as with income tax) and the annual allowance is to shrink in the next tax year to £6,000 then £3,000 in 2024-25.
For those looking to buy a residential property, the SDLT reduction announced by Mr Kwarteng will be reversed in 2025. Announcements were made relating to R&D to combat abuse and fraud combined with the announcement of a consultation with industry to establish what support R&D intensive SMEs may need. The proposed business rates revaluation will proceed next year but with transitional relief measures. This affords some good news to businesses.
So, fingers crossed this will be the last financial statement of 2022 and we look forward to the Spring Budget next year wondering what exactly there is left to announce.
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