No tax rises but more tax to pay for individuals

With every budget announcement comes the question “What does this mean for me?” especially in the current climate. While we may feel inclined to focus our attention on our day-to-day budgeting at the moment, it’s important to consider how recently announced personal tax changes could impact our finances in the long-term. In this article KPMG’s Jo Bateson evaluates the headlines from the Autumn Statement and the impact of the announced changes to Income, Capital Gains and Inheritance Tax.
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We were expecting “difficult decisions” and for “everyone to pay more tax” for Jeremy Hunt’s Autumn Statement, his first fiscal event as Chancellor so media speculation has been mounting in anticipation. In reality, the personal tax announcements were largely already pre-announced and although no tax rate rises were announced, the combination of frozen tax bands and the cutting of certain allowances is expected to raise almost £15bn. This is not insignificant and allows the Conservative Party to say that they have stuck to their 2019 manifesto pledge not to raise income taxes. Were there any other surprises in the published documents? A few for the eagled-eyed but no headline grabbing announcements.

Arguably the main personal tax announcements are that the tax-free personal allowance and the income tax bands, i.e. the place at which you start to pay a particular rate of tax, will remain frozen for a further 2 years. This now extends to 2028 which is an interesting measure given that the Conservatives may not be in power at this time. This measure alone is due to raise over £6bn according to the Office of Budget Responsibility which is fiscal drag at its most effective. However, given the principle that no parliament may bind a future parliament, such rate freezes may perhaps be seen better as a suggestion or a wish list than hard law.

In order for “those who have more to contribute more” the level at which an individual starts to pay the top rate of income tax has been brought down from £150,000 to £125,140 with effect from 6 April 2023. This will bring a significant number of taxpayers into the top rate of tax which is reported to generate an additional £3.7bn by 2027/28. From April 2023, earning over £100,000 is a tricky place to navigate with losing £2 of your tax-free personal allowance for every £1 over £100,000 giving you an effective tax rate of 60%, then going straight into the 45% band. I do not ever think that I have seen so many difficult effective tax rates concentrating in such a way.

The current dividend allowance of £2,000 will be cut to £1,000 from April 2023 and then down to £500 from April 2024. Surprisingly this is stated to raise around £3bn over 5 years. No changes were announced to how dividends in ISAs are taxed. The capital gains tax annual exemption will also be reduced from £12,300 to £6,000 from April 2023 and then down again to £3,000 from April 2024. The OBR states that this could raise an additional £1.6bn over the next 5 years. The Office of Tax Simplification did review the impact of reducing the annual exemption back in November 2020 and they found that a reduction of the annual exemption to £6,000 would require an additional 235,000 taxpayers to file a tax return. The Chancellor has kept the reporting limit fairly high at £50,000 presumably to try and limit the amount of taxpayers required to submit tax returns unnecessarily when there is no capital gains tax to pay.

The inheritance tax nil rate band will remain frozen at £325,000 for a further 2 years although it has been at that level since April 2009 so not much of an announcement. In a high inflation environment, increased asset values will mean that this measure does bring in more IHT revenue although interestingly the OBR only estimate this as £35m.

HMRC have also been given an additional £79m to get more resource to address tax compliance amongst the wealthy as well as serious tax fraud. This measure is projected to raise an additional £725m so we should expect increased activity from HMRC perhaps making up for the time lost during COVID. So what personal tax measures were not announced?

Capital gains tax rates have remained unchanged at 20% on most assets which is surprising when most of the market appeared to be expecting an increase. The non-dom regime, for those who are UK resident and domiciled outside the UK and claiming the remittance basis, i.e. paying UK tax on UK income and gains and only on non-UK income and gains to the extent that they are brought to, used or enjoyed in the UK remains largely intact. There was a specific anti-avoidance targeted measure in relation to share-for-exchanges between UK companies and non-UK companies which came into effect immediately (from 17 November 2022) but no other changes or even a consultation.

Pension tax relief has remained untouched as has gift aid relief which some had thought would have been impacted by the Chancellor’s “difficult decisions”. Inheritance tax remains unchanged too with no mention of a wealth tax or reform to any of the reliefs such as business property relief.

Much of the Autumn Statement announcements were leaked in the days prior and there were no big surprises or unexpected changes on the day itself. The personal tax policy still seems to be raising taxes through fiscal drag and keep the capital taxes environment stable. There was no sign posting for what we can expect in a Spring Budget other than Jeremy Hunt’s aim of “low taxes and sound money”. Assuming these measures lessen the dip over the next few months, one might have reason to suspect that tax cuts could follow presumably closer to the general election. If, however, the dip deepens, perhaps those who have more will have to contribute even more. Only time will tell.

One thing does seem clear, though, and that is the Government have been reluctant to interfere too deeply in our existing capital gains and inheritance tax regimes. A future government may take a different approach, so now may be the perfect time to consider your options.

Monument has partnered with KPMG to offer Members a collection of tax advisory services, all of which include a complimentary initial consultation to help understand if the services may be right for them. Members also enjoy preferential rates on each service when redeemed through the Member Services app.

KPMG’s offering to Members includes a General Tax Strategy Review, Inheritance Tax Reviews, and Self-Assessment Tax Returns. Find these services and the Member Offer in the Personal Tax collection within the Member Services app anytime, and book your complimentary consultation with KPMG.