Who is the most hated Tory politician this month? It seems like Jeremy Hunt and Matt Hancock are currently battling it out for the title. I have to say, I think Matt Hancock is still leading that race. I just don’t think his appearance in the jungle is helping him…
Anyway, this week we got another budget (technically just an Autumn Statement) but still. Here’s a very brief few key points on how it might affect you.
Your personal allowance has been frozen until 2028. While the tax headline rate doesn’t increase, any payrise you get (inflation or a new job etc), will mean you pay more tax. Remember a year ago or so how we discussed Stealth Tax? Add this one to it
Additional Rate Tax Threshold Reduced to £125,140
From the start of the new tax year, you will be an additional rate tax-payer (paying 45%) on income over £125,140. This brings lots of people (an estimated 250,000) into the highest tax bracket who have never been there before. Don’t forget that you lose £1 of your personal allowance for every £2 over £100k that you earn – this is called The Tax Trap. The effective rate of tax on income between £100,000 – £125,140 is 60%. You also lose entitlement to childcare tax relief if you have income over £100,000.
Therefore, the ability to make charitable donations or pension contributions to bring adjusted income down to £100,000 could be more important than ever now. At this level, the tax calculations get quite complex – definitely speak to us or your accountant if you find yourself caught by this.
Dividend Tax Allowance reduced
You can currently earn £2,000 from dividends tax free – this is especially useful for business owners who pay themselves a mix of salary and dividends. In April, this will drop to £1,000 and then in April 2024, will drop further to £500. This is a significant decrease and one which will have a big impact on many business owners (as recently as the 2017/18 tax year this allowance was £5,000).
Capital Gains Tax Allowance reduced
You can currently make a capital gain of £12,300 before you need to pay Capital Gains Tax. This will reduce to £6,000 in April 2023 and £3,000 in April 2024. This will likely be felt most by those with General Investment Accounts or people looking at selling buy to lets or second properties.
Trusts already are only entitled to 50% of an individual’s CGT Allowance so this will reduce to £3,000 and then £1,500.
A bit of a shock this one!
The Good News?
The State Pension is going to increase by 10.1% in 2023 – great news for pensioners! The same level of increase will also apply to State Pension Credit as well.
After more media hysteria about big changes to pensions– nothing changed. Phew
Also, every household in Northern Ireland is going to receive £200 to help towards bills. This was initially only going to those of us who use oil, but I think they’ve decided that’s too difficult so everybody is going to get it. When and How we get it is another question entirely? Do we need to wait for a functioning Executive? If so, we might have it by 2030 if we’re lucky….
Hopefully (really and truly I’m crossing my fingers) this is the end of tax alterations and adjustments for a while. It’s been hard to keep up and I still find myself just double checking what is still in place and what has been scrapped.
There are things we can do to reduce tax and its impact, but it needs to be part of the bigger financial plan. At the same time, the cost of living is only going up and I fear it will continue over Christmas and into the New Year, so we need to make sure we can all heat the house and put food on the table, before we start thinking about doing things to reduce tax.
Speak to us or your accountant if you want to discuss any of this.