The UK’s Autumn Statement was announced on 17th November; the first announced by the new Chancellor of the Exchequer, Jeremy Hunt. Hunt’s statement was the culmination of a turbulent few weeks in British politics; the key themes running through his speech – stability, growth, and public services, seem to have been relatively well received by markets.
The Chancellor’s Herculean task is to plug the hole in the public finances while simultaneously providing support to an electorate affected by the double whammy of cost of living and energy price crises.
Mr Hunt had prewarned us to expect “difficult decisions” needing to be made and set an expectation that everyone would pay more tax. The personal tax changes unveiled on the 17th were largely pre-announced - although no tax rate rises were announced, the combination of frozen tax bands and the cutting of certain allowances is expected to raise additional personal taxes of over £15 billion. But what was in the statement that investors should be thinking about?
The taxation of dividends has been in the spotlight over recent budgets. Looking back to last year, the rate of dividend tax was increased by 1.25 percent. The mini-budget in September briefly reversed this increase, but a few weeks later the rise was reinstated so we are left with the 1.25 percent increase in dividend tax rates.
This time around, the headline rates of dividend tax have not been touched, but the dividend tax-free allowance has been revised.
As a result, the current tax-free dividend allowance of £2,000 will be cut to £1,000 from next April and then down to £500 from April 2024. This measure alone is expected to raise almost £3bn over 5 years. There was no change to the position for dividends paid on shares held within an ISA though, which investors will be relieved to see.
Capital Gains Tax Annual Exempt Amount
The CGT annual exempt amount will also be reduced in a similar manner to the dividend allowance. This time changing from its current level of £12,300 to £6,000 from next April and then down again to £3,000 from April 2024. The Office of Budget Responsibility states that this could raise an additional £1.6 billion of revenue over the next 5 years.
When the Office of Tax Simplification carried out a review of the capital gains tax regime back in November 2020, it modelled the impact of reducing the annual exemption and found that reducing the exemption to £6,000 would result in an additional 235,000 taxpayers having to file a tax return – it remains to be seen whether the additional revenues earned make this additional administrative burden worthwhile.
Income Tax Rates remain the same
The main rates of income tax have remained the same, these being 20 percent, 40 percent, 45 percent. Against the backdrop of previous budgets this does have some significance - only back in the Spring of this year the then Chancellor, Rishi Sunak, expressed his desire to reduce the basic rate to 19 percent in 2024, while only 2 months ago the 45 percent additional tax rate was scrapped altogether.
As Scotland and Wales can set their own income tax rates, we will have to wait and see if there will be any changes to their rates at their respective budgets. Wales historically has followed the rest of the UK, however Scotland has deviated slightly with the introduction of a few additional tax rates.
No changes to CGT & IHT rates and reliefs
Perhaps more significant for investors is what didn’t change, for the time being. Ahead of the Autumn statement, there was plenty of speculation around changes to Capital Taxes, particularly Capital Gains Tax. For the last few years in fact, we have anticipated some sort of change to capital tax rates, but nothing was forthcoming this time.
Inheritance tax rates have also remained unchanged, along with potentially generous reliefs such as Business Property and Agricultural Property Relief. Again, since the OTS report into inheritance tax in 2018, there has been speculation that the IHT regime would be updated.
EIS / VCT schemes extended
Investors will also have been relieved to see the mention of the Enterprise Investment Scheme and Venture Capital Trusts. The Government acknowledged the success of the existing schemes that are in operation, and, recognising the benefits for growth within the UK, confirmed that the tax benefits will be extended beyond 2025.
Stability … for now.
In summary, the main impact of the Autumn Statement for investors is the freezing of thresholds and allowances. Fiscal drag will cause most investors to be paying more tax overall. On the flipside, we have not seen the widely anticipated changes to capital taxes – perhaps we look forward to a period of relative stability in that respect, in the run up to the next election.
To further discuss considerations for your tax position, please contact Iona Martin.