How the Autumn Statement 2022 will affect your finances
Jeremy Hunt, the UK’s fourth chancellor since July, has raised tens of billions of pounds by making tax changes, without actually increasing the nominal rate of any taxes. As the BBC Money Box presenter Paul Lewis recently said “the adults may be back, but they are taking away your pocket money.”
Instead the increased tax take has been achieved through a combination of:
- Freezing income tax, national insurance and inheritance tax thresholds for a further two years until April 2028.
- Reducing the level of income at which 45% income tax rate applies from £150,000 to £125,140.
- Cutting the capital gains tax annual exemption from £12,300 this year to £6,000 next year and £3,000 the following year and cutting the dividend tax exemption from £2,000 this year to £1,000 next year and £500 the following year.
There will have been eyebrows raised at the Chancellor’s comment that ‘you cannot borrow your way to growth' given that 55 days previously that is exactly what the Mini-Budget proposed, and applying the 45% tax rate to those earning £125,140 or more is quite a change from the proposed scrapping of this top rate of income tax back in September. That said, markets reacted relatively calmly to the budget, which was certainly not the case after the mini-budget.
In his statement, the Chancellor announced that the OBR (Office for Budget Responsibility) has forecasted inflation will be 9.1% this year and 7.4% next year. If the various tax thresholds increased in line with these figures, as shown in the table below, the increases would be significant. However, with tax bandings frozen, reduced or cut, the difference is staggering.
After 9.1% uplift
After 7.4% increase
Rate in 2024/25
|Income Tax Personal Allowance||£12,570||£13,714||£14,729||£12,570|
|Basic Rate Tax Band||£50,270||£54,845||£58,903||£50,270|
|Additional Rate Tax Band||£150,000||£163,650||£175,760||£125,140|
|Capital Gains Tax Exemption||£12,300||£13,419||£14,412||£3,000|
|Dividend Tax Exemption||£2,000||£2,182||£2,343||£500|
|Pensions Lifetime Allowance||£1,073,100||£1,170,752||£1,257,388||£1,073,100|
From a financial planning point of view, this makes utilising allowances while they are available more important than ever. For example, a higher rate tax payer would pay nothing on crystallising a £12,300 (non-property) gain this year, but in 2024/25 the same gain would attract a £1,860 tax charge. From an income tax point of view, more people are set to pay higher and additional rates of income tax with tax bandings frozen, but pension contributions are a very tax efficient way of preventing paying higher rates of tax on income which would otherwise have fallen into higher tax bands.
Regarding state pensions, pensioners will be delighted to see the pensions triple lock remain, meaning the full state pension will increase by £870 from April next year, the largest increase ever.
In other announcements, the £86,000 cap on social care costs has been delayed by two years from 2023 to 2025 and help with energy bills will be extended for another year although the cap will be at a higher level, with typical bills being capped at £3,000 (rather than £2,500) from April 2023.
Below we have summarised these main elements of the Autumn Statement that are relevant to the financial planning world.
Additional rate tax threshold
From 6 April 2023, additional rate tax will apply to income above £125,140 rather than the current £150,000. The new threshold of £125,140 ties in with the income figure at which the personal allowance is completely lost.
Tax and national insurance thresholds
Apart from the additional rate threshold change outlined above, all other income tax, inheritance tax and national insurance thresholds and allowances will be frozen until April 2028 (they had already been frozen to April 2026 so this measure extends this by another 2 years).
Currently set at £2,000 pa this will reduce as shown below:
- To £1,000 from April 2023
- To £500 from April 2024
Capital gains tax annual exempt amount
Currently set at £12,300 pa this will reduce as shown below:
- To £6,000 from April 2023
- To £3,000 from April 2024
Stamp duty land tax (SDLT)
The cuts to SDLT that took effect from 23 September this year (shown below) will end on 31 March 2025.
The level at which people begin paying Stamp Duty Land Tax (SDLT) was increased on 23 September from £125,000 to £250,000.
For first-time buyers the level at which they begin paying stamp duty has been increased from £300,000 to £425,000.
In addition, the government is allowing first-time buyers to access the relief when they buy a property costing less than £625,000 rather than the current £500,000.
Will remain at £5,000.
State Pension Age review
Details will be published early in 2023.
Pension triple lock will apply in April 2023
Meaning that the state pension will increase by inflation of 10.1% in April. A full weekly basic State Pension will increase from £141.85 to £156.20, and the new weekly State Pension will increase from £185.15 to £203.85.
State benefits and support
Energy Price Guarantee
This currently fixes the cost of energy so that a ‘typical’ household pays the equivalent of £2,500 on their energy bills a year. From April 2023, this will change so that the typical household will then pay on average £3,000 a year.
Will increase by 10.1% in April (i.e. the September 2022 annual CPI rate).
Cost of living payments
Will continue in 2023 at the rates below:
- £900 for those on means-tested benefits (paid in instalments)
- £300 for pensioners
- £150 for those on disability benefits
In April 2023, benefits will increase in line with inflation, i.e. by September 2022 CPI inflation of 10.1%.
Benefit cap rise
In April 2023, the government will also increase the benefit cap in line with inflation by 10.1%. The benefit cap will rise from £23,000 to £25,323 for families in Greater London and from £20,000 to £22,020 for families nationally. Lower caps for single households without children will rise from £15,410 to £16,967 in Greater London and from £13,400 to £14,753 nationally.
Household Support Fund extension
The Government is providing an extra £1 billion of funding to enable the extension of the Household Support Fund in England for a further year from April 2023. These payments will be made on a UK-wide basis to Local Authorities. Those in need can access the fund by contacting their local Council. The money can be used to cover the cost of essentials like food, energy and water bills.
National Living Wage
From 1 April 2023, the National Living Wage (NLW) will increase by 9.7% to £10.42 an hour for workers aged 23 and over. Young people and apprentices on the National Minimum Wage (NMW) rates will also see a boost to their wages. Rates will be increased for people aged 21-22 by 10.9% to £10.18 an hour, for those aged 18-20 by 9.7% to £7.49 an hour, for 16-17 year olds by 9.7% to £5.28 an hour, and for Apprentices by 9.7% to £5.28 an hour.
The Dilnot reforms, including the introduction of the £86,000 cap on care fees, which were due to be introduced in October 2023, have been postponed for two years.
To discuss any of the issues raised in this article, please contact your financial adviser or speak to us to arrange a free initial consultation.
Please note: This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. The Financial Conduct Authority (FCA) does not regulate tax advice. Investment returns are not guaranteed, and you may get back less than you originally invested.