Autumn Statement 2022
This time last year, the Autumn Statement was announced by the then Chancellor and now Prime Minister, Rishi Sunak. In a rollercoaster year in both the economy and politics, the new Chancellor, Jeremy Hunt, unveiled the government’s plans in the House of Commons.
As anticipated, there has been a number of announcements. We have highlighted the key points that we believe are most relevant to our clients:
Tax-free allowance on dividends and capital gains tax cut
Additional rate of tax threshold reduced
Income tax personal allowance frozen
National insurance and inheritance thresholds frozen
National living wage increase
State pension payments to increase in line with inflation.
Electric vehicle taxing
Tax-free allowance on Dividends and Capital Gains Tax are cut
Dividends
The tax-free dividend allowance has been at £2,000 since 2018/19. In a surprising announcement, this will now be cut from £2,000 to £1,000 from 6 April 2023, and then reduced even further to just £500 from 6 April 2024.
What does this actually mean?
In the current year, if you were to receive £2,000 in dividends, you would pay no tax on this amount. From next year, if you were paid the same amount again, you would be expected to pay £87.50 in tax on this income, and £131.25 in tax from April 2024.
Capital Gains Tax
Capital gains tax is a tax on any profit you make on selling (or disposing of) an asset you own that has increased in value. Of course, there are items that are exempt, such as your home or personal car. In the past, the threshold at which you pay capital gains tax is where a profit has been made on an asset of over £12,300. However, you may still need to report your capital gain if the sale proceeds were over four times the annual exemption i.e. £49,200 (£12,300 x 4).
From 6 April 2023, the capital gains tax annual exemption of £12,300 will be reduced to £6,000, and then further reduced to just £3,000 from 6 April 2024.
As a result of reducing the capital gains tax annual exemption, we can expect a significant increase in the amount of tax being paid on the sale of assets. However, the requirement to report capital gains proceeds will be fixed at £50,000 from 6 April 2023 (previously £49,200 as mentioned above).
Additional Rate of Income Tax to be paid on earnings over £125,140
The rate at which individuals pay the additional rate of tax has been cut from £150,000 to £125,140, a drop of £24,860. This means that individuals earning over £150,000 will now pay 45% on £24,860 more of their income. This equates to £11,187 more in income tax.
Income Tax and National Insurance thresholds frozen until 2028
The current levels of income tax personal allowance, higher rate threshold national insurance thresholds will be maintained at their current level until 2028. This is a further 2 years than previously announced.
National Living Wage increases
From 1 April 2023, the legally-enforceable national living wage for employees over the age of 23 will increase from £9.50 to £10.42 per hour. However, the Living Wage Foundation has announced that this just falls short of the “real” living wage of £10.90 (£11.95 London).
The National Minimum Wage (for those under 23) has also increased and can be summarised as follows:
£10.18 for 21-22 year olds
£7.49 for 18-20 year olds
£5.28 for 16-17 year olds
£5.28 apprentice rate for apprentices under 19, and those 19 and over in their first year of apprenticeship.
State Pension payments increased
Jeremy Hunt confirmed that the country is in recession, and with the ongoing rise in the cost of living, the statement today provided some respite to retirees. It was announced that pension payments will rise by 10.1% in line with inflation from 6 April 2023. The amount received will differ depending on when individuals reach pension age. If you are eligible for the full state pension, you can expect to receive either:
£203.85 per week (previously £185.15) for those that have reached state pension after April 2016; or
£156.20 per week (previously £141.85) for those that have reached state pension before April 2016
Taxing Electric Vehicles
The government will introduce Vehicle Excise Duty (VED), or “road tax”, on electric cars, vans and motorcycles from April 2025, aligning the treatment with petrol and diesel vehicles.
This means that new zero-emission cars registered on or after 1 April 2025 will be liable to pay the lowest first-year rate of road tax, currently £10 a year. From the second year of registration onwards, they will move to the standard rate, currently £165 a year. In addition, the benefit-in-kind rates for electric vehicles will rise from the current rate of 2%, going up 1% per year from April 2025 to 5% by the 2027/28 tax year.
Other announcements included
Continued freezing of VAT registration threshold at its current level until March 2026.
Continued freezing of Inheritance Tax thresholds at their current level until April 2028.
Company car tax rates set until April 2028.
Car and van benefit charges: uprate with Consumer Price Index in 2023-24.
First Year Allowance for electric vehicle charge points: extend for a further two years until April 2025.
