The chancellor’s autumn statement saw a number of well-trailed tax changes impacting both individuals and businesses.

We note some of the key changes, which broadly fall into three categories:

Tax rises

• The 45% rate of income tax threshold will drop from £150,000 to £125,140
• Windfall taxes on oil and gas (increased to 35% ) to apply from January 2023 until March 2028, and a new 45% tax on super-profits of electricity generators.
• Previously, it had already been announced that corporation tax will increase to 25% from April 2023.
• The Vehicle Excise Duty exemption for electric vehicles will end from April 2025

Frozen thresholds

• Other income tax bands and the personal allowance threshold will be frozen until April 2028
• The Inheritance Tax threshold will remain frozen at £325,000
• The VAT registration threshold frozen at £85,000
• Employer National Insurance Contribution threshold frozen

Lowering of Reliefs

• The annual exemption for Capital Gains Tax for individuals will fall from £12,300 to £6,000 from April 2023, and to £3,000 from April 2024
• The annual exemption for Capital Gains Tax for trustees remains half of that for an individual, meaning it will fall to £3,000 from April 2023, and to £1,500 from April 2024
• The dividend allowance will fall from £2,000 to £1,000 from April 2023, and to £500 from April 2024. Trustees have the same dividend allowance as individuals.
• Rules around Research and Development Tax Credits to be changed – this will reduce R&D relief for SMEs.

What’s the impact?

The reductions, year-on-year for the next two tax years to the CGT annual exempt amount and tax-free amount for dividends (an eventual 75% reduction), will lead many who are impacted to consider their options. There may be an uptick in savers putting funds into ISAs, pensions or Enterprise Investment Scheme (EIS) shares or Venture Capital Trusts (VCTs) instead, given these achieve both income tax relief and a CGT-free disposal after a three- or five-year holding period. Individuals and trusts (as trusts receive only half of the individual CGT annual exempt amount) with small holdings of shares as investments may wish to bring forward the disposal of these to benefit from the current higher annual exempt amount. Share option holders may wish to exercise earlier (assuming their options have vested) in order to benefit from the currently higher CGT free amounts.

What was not included in the Autumn Statement?

As ever in politics, the changes did not go far enough for some. Despite calls from the opposition, the government chose not to:

• charge VAT on private school fees;
• increase the amount of tax levelled on bonuses paid to bankers and private equity managers (the rate of tax paid is lower than income tax); or
• remove the non dom status.

What’s next?

It’s worth noting that the changes to the threshold for the highest rate of income tax (lowering it to £125,000) do not yet apply to Scotland since this is a devolved area.

We can look forward to the Scottish Government’s “response” in mid-December when it announces its tax and spending plans. Since the Scottish Government was given the power to vary income tax rates and bands, it has generally chosen to increase the level of taxation. Therefore, it may be that higher earners in Scotland are hit with news of tax rises in the run up to Christmas.

In the meantime, our tax and private client teams are here for any advice you need

Further details of the tax changes can be found here, at para 5.17.

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