To say that the news cycle has been action-packed this autumn would be an understatement. Since September, we’ve seen a change of monarch, two changes of prime minister, a new cabinet, and a temporary chancellor whose mini-budget triggered a run on sterling and a rise in gilt yields so sharp that it forced the Bank of England to intervene to protect the solvency of pension schemes. This would be a remarkable combination to occur in any single year, yet it has all happened in the last four months.
Though termed a “mini-budget”, the measures unveiled by Kwasi Kwarteng in September - and the markets’ reaction to them - were in no way mini. A plan to accelerate growth via a series of tax cuts, materially increasing the fiscal deficit but with no insight conveyed about how it would be financed, and with no updated framework by the Office for Budget Responsibility, created a dramatic loss of confidence.
The fallout has been the replacement of Liz Truss and Kwasi Kwarteng by Rishi Sunak and Jeremy Hunt, and with it, a considerable change of policy in the Autumn Statement. We’ve seen significant tax increases that directly impact many of our clients and their investments, summarised as follows:
From 6 April 2023, the additional rate income tax threshold will be reduced from £150,000 to £125,140. Those with higher earnings may be liable to the 45% rate of income tax.
Tax on dividends
The dividend allowance will reduce from £2,000 to £1,000 from 6 April 2023 and again to £500 from 6 April 2024. Dividends exceeding this allowance will be taxed at the rates announced at the earlier budget statement (8.75% for basic rate, 33.75% for higher rate and 39.35% for additional rate).
Capital gains tax
The capital gains tax (CGT) nil-rate allowance available to individuals will reduce from £12,300 to £6,000 on 6 April 2023 and then to £3,000 from 6 April 2024. Gains above the nil-rate threshold will continue to be charged at the applicable rates (10% up to higher rate threshold or 20% thereafter).
The inheritance tax nil-rate allowance remains frozen at £325,000 (which excludes the residence nil-rate band allowance). It will remain fixed at this level until 6 April 2028 (extended from 2026).
These changes may make a material difference to the levels of tax applicable on an ongoing basis through income, dividend or capital gains taxes, and at the end of lifetime via inheritance tax. Please, therefore, get in touch if you would like to discuss the possible impact of these changes on your financial position.
The information contained in this article does not constitute a personal recommendation and the investment or investment services referred to may not be suitable for all investors. Any opinion or estimate expressed in this publication is Investec Wealth & Investment’s current opinion as of the date of this article and is subject to change without notice. The value of investments and any income from them is not guaranteed and may go down as well as up; you may get back less than the amount invested. Past performance is not an indication of future performance.
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