After weeks of preparing the ground for what the Chancellor has referred to as "decisions of eye-watering difficulty", in his Autumn Statement today Jeremy Hunt has unveiled a battery of measures for balancing the books and reassuring markets. As expected, the emphasis has been on tax "rises" and spending cuts, whilst walking the political and economic tightrope of trying not to damage prospects for economic growth too much.
In terms of the government's plans for addressing the £55 billion black hole in the country's finances, the Chancellor's "path to stability" introduces no rises to headline tax rates, heavy emphasis being placed instead on freezing various thresholds and reducing allowances. In particular:
- Income Tax (IT)
- The IT personal allowance will be frozen for a further two years, until April 2028. This means that as wages rise to catch up with inflation, more people will be brought within higher tax rate brackets, ultimately paying more tax.
- The threshold from which the additional rate of income tax of 45% becomes payable is to be reduced from £150,000 currently to £125,140, in a nod to the notion of fairness whereby those with the most resources, pay most.
- The dividend tax-free allowance is being reduced from £2,000 to £1,000 from April 2023, falling to £500 from April 2024. This is likely to affect owners of smaller family businesses, many of whom pay themselves by a mixture of salary and dividends.
- Capital Gains Tax (CGT): Following the OTS's recommendations in November 2020 to more closely align the rates of income tax and CGT, and given the government's need to raise revenue, changes in the CGT regime have been widely anticipated. The fact that such changes have come in the guise of a reduction in the CGT annual exemption from £12,300 currently to £6,000 in April 2023, going down to £3,000 in April 2024, is welcome news to those keen to ensure that tax rises do not stifle growth in the economy and disincentivise investment. With taxpayers controlling the timing of disposals, however, the impact of this measure may not meet the government's revenue raising expectations.
- Inheritance Tax (IHT): Inheritance tax (IHT), and its predecessor taxes, were historically intended to tax only the wealthiest sectors of society. This is no longer the case. With the freezing of the nil-rate band at £325,000 since 2009 - a policy which the Chancellor has announced will now continue until April 2028 - the tax net has been cast far more widely, bringing within scope anyone who owns an averagely-priced property, particularly in London and the South-East. Coupled with the fact that IHT is payable on the value of assets purchased during lifetime from after-tax funds, there is a real perception of unfairness. With more people affected by IHT, this sentiment is only likely to grow.
- Stamp Duty Land Tax (SDLT): the cuts to SDLT introduced in September's mini-budget will remain in place until 31 March 2025, at which time they will sunset. Property markets are likely to react positively to this news.
Overall, there were few big surprises in the Autumn Statement, other than perhaps the acknowledgement that Britain is now officially in a recession. Against that backdrop, the absence of any dramatic changes with the potential to deepen and prolong such recessionary trends, is perhaps understandable.
