Barely eight weeks since the disastrous “mini” budgetChancellor Jeremy Hunt has proposed a package of tax hikes and spending cuts designed to fix Britain’s ailing public finances – but it comes at a cost to the nation’s personal finances.
Promising to protect the vulnerable and focus tax hikes on those with the broadest shoulders, the Chancellor warned that Britain’s economy had already entered recession and things would get worse before they got better.
Here is a summary of the main measures that could affect your own personal finances:
Tax
Around a quarter of a million taxpayers with incomes above £125,140 will pay the top tax rate of 45p from next April, after Hunt lowered the threshold from its current level of £150,000.
This means people with an income of over £150,000 will pay an additional £1,243 in income tax per year.
“We ask more of those who have more,” said the Chancellor.
He also extended the freeze on other income tax and national insurance thresholds for another two years until 2028, which is expected to generate tens of billions of pounds in ‘stealth taxes’ as inflation rises. raise workers’ wages.
Rather than increasing with inflation, the tax-free personal allowance will remain at £12,570 and the upper rate threshold at £50,270 in England, Wales and Northern Ireland (Scotland has different tax thresholds).
The freeze is expected to cause around 3 million people to pay higher income tax rates by 2026, according to analysis by the Institute for Tax Studies.
The freezing of the “zero rate bracket” of inheritance tax will also be extended from 2025-26 to 2027-28, in a move that could net the Treasury at least half a billion pounds.
Local authorities will be able to increase municipal tax bills by up to 5% from next April without the need for a referendum.
The married couple’s allowance is expected to increase in line with September’s inflation figure of 10.1% from next April.
From April 2025, electric vehicles will no longer be exempt from vehicle excise duty.
Investments
The Chancellor has announced her intention to significantly reduce the tax allowances available to investors.
Capital gains tax allowances will be reduced, with the tax-free annual allowance dropping from £12,300 to £6,000 from next April, then halved to just £3,000 from April 2024.
The tax-free dividend allowance will be halved from £2,000 to £1,000 from next April, and halved again to just £500 from April 2024.
Scheduled to raise more than £1.2bn a year from April 2025, the measures will hit investors who hold income-generating stocks outside of tax wrappers like Isas and pensions, as well as costs for directors of public limited companies who are remunerated by dividends.
“While high net worth individuals are unlikely to feel much pain from this, for many small investors this increase in tax on dividends and capital gains will be significant,” said Charles Incledon, principal of Bowmore. Asset Management.
“Cuts to this income could lead to a real squeeze on the finances of many small investors, especially those who are retired and dependent on dividend income from their stocks. Bad news considering we have a cost of living crisis right now.
However, fears that the Chancellor would go further and bring capital gains rates in line with income tax rates have proven unfounded.
pensions
The triple blocking of the state pension has been maintained, which means a 10.1% increase for pensioners next April.
The full annual amount of the new state pension will top £10,000 for the first time next year and top £200 a week.
The pension credit, a benefit enjoyed by the poorest pensioners, will also be increased by 10.1 per cent.
However, the Chancellor said a review in the current level of the legal retirement age would be published at “early 2023”.
The statutory retirement age has been gradually increased for both men and women and will reach 67 by 2028. Treasury documents say the review “will carefully balance important factors including fiscal sustainability, the economic environment, the latest data on life expectancy and equity for both retirees and taxpayers.
The lifetime allowance governing what can be saved tax-free in a pension had already been frozen at £1.07million until 2026, but Treasury documents did not say whether the freeze would be extended until ‘in 2028.
The energy cap will rise to £3,000 a year from next April for most UK households ©Getty Images/iStockphoto
Cost of living payments
From next April, the current package of aid measures for energy bills will be more targeted at the most modest households.
Currently, the Energy Price Guarantee caps an average household’s energy bills at £2,500 a year. From next April, that cap will rise to £3,000 and remain at that level for 12 months, saving the government £14billion.
The £400 support package received by all UK households will not be repeated next year, but households on means-tested benefits will receive a cost of living payment worth £900, households pensioners will receive £300 and disabled people £150.
Households using alternative fuels such as oil will see their support doubled this winter, from £100 to £200.
The government can “revise the parameters” of the scheme if wholesale energy costs rise substantially. It will also consult on measures to cap the amount of state support large energy consumers can receive from April 2023, but would seek to protect vulnerable people with high energy needs.
The aid measures will be partly financed by an increase in exceptional taxes on energy companies.
The Chancellor confirmed that means-tested benefits and the national living wage will also increase by 10.1% next April.
Property
There has been no change to stamp duty — one of the rare “mini” budgetary measures to have remained intact.
However, the Chancellor said these measures will only remain in place until March 31, 2025.
Former Chancellor Kwasi Kwarteng has doubled the threshold at which stamp duty would start to apply in England and Northern Ireland to £250,000.
First-time buyers were also exempt from paying tax on the first £425,000 of their purchase, up from £300,000 previously.
Hunt said the change would now be temporary, “creating an incentive to support the housing market and the jobs associated with it by stimulating transactions during the period when the economy needs it most.”
Additional reporting by George Hammond