Freezing of some allowances, reductions in others and a reduction in the 45 percent additional rate of income tax threshold were the main announcements in the area of personal taxes.
Personal tax allowances and thresholds
The additional rate threshold (“ART”) above which the 45 percent rate of income tax commences is to be lowered from £150,000 to £125,140 from 6 April 2023, costing such taxpayers a maximum of £1,243 in additional income tax every year. The Government will legislate this change in Autumn Finance Bill 2022.
The reduced ART for non-savings and non-dividend income will apply to taxpayers in England, Wales, and Northern Ireland. The reduced ART for savings and dividend income will apply UK-wide. Scotland’s top rate of income tax is 46 percent and commences from £150,000. Will Scotland reduce this threshold in line with the rest of the UK? The Scottish Budget is due to be held on 15 December 2022.
The level of the £2,000 dividend allowance which applies UK wide and taxes dividends at 0 percent is to be reduced from £2,000 to £1,000 from 6 April 2023 and further reduced to £500 from 6 April 2024.
The personal allowance (“PA”), inheritance tax nil rate bands, employee’s national insurance contributions (“NICs”) Upper Earnings Limit (“UEL”) and Upper Profits Limit (“UPL”) thresholds and the level of the income tax higher rate threshold (“HRT”) were all due to be maintained at their current level until April 2026. These have now been frozen for a further two years until April 2028; effectively resulting in a tax increase by remaining unchanged across the UK.
From 6 July 2022, the NICs Primary Threshold (“PT”) and Lower Profits Limit (“LPL”) were increased to align with the PA and will be maintained at this level from April 2023 until April 2028. The Class 2 Lower Profits Threshold (“LPT”) will also be fixed from April 2023 until April 2028.
The PA, PT, LPL and LPT will remain at £12,570 and the HRT, UEL and UPL will therefore remain at £50,270. The PA and NICs thresholds apply across the UK. The HRT for non-savings and non-dividend income will apply to taxpayers in England, Wales, and Northern Ireland, and the HRT for savings and dividend income will apply UK-wide. The Government will legislate for the income tax measures in Autumn Finance Bill 2022, and NICs changes in affirmative secondary legislation in early 2023.
The Government will also fix the Lower Earnings Limit (“LEL”) (£6,396 per annum (£123 per week)) and the Small Profits Threshold (“SPT”) at 2022/23 levels in 2023.24 (£6,725 per annum). The Upper Secondary Threshold, Apprentices Upper Secondary Threshold, and Veteran Upper Secondary Threshold will stay fixed at £50,270 per annum until April 2028, to remain aligned with the UEL and UPL.
The Government will use the September CPI figure of 10.1 percent to increase the Class 2 and Class 3 NICs rates for 2023/24. Class 2 will be £3.45 per week, and Class 3 will be £17.45 per week. The Government will legislate for these measures in affirmative secondary legislation in early 2023.
The married couples and blind person’s allowances for 2023/24 are being increased by the September CPI figure (the married couple’s allowance will be between £4,010 and £10,375 and the blind person’s allowance will be £2,870). These changes will be implemented via the usual Treasury Order.
Capital gains tax
The capital gains tax (“CGT”) annual exemption will be reduced from its current level of £12,300 to £6,000 from 6 April 2023 and further reduced to £3,000 from 6 April 2024. The Chancellor did not make any changes to the rates of CGT.
In the area of CGT anti-avoidance, the Government intends to legislate in Spring Finance Bill 2023 so that shares and securities in a non-UK company acquired in exchange for securities in a UK close company will be deemed to be located in the UK. This will have effect where an individual has a material interest in both the UK and the non‑UK company and where the share exchange is carried out on or after 17 November 2022. Draft legislation and supporting documents have been published for this measure.
Inheritance tax
The inheritance tax nil-rate bands are already set at current levels until April 2026 and will stay fixed at these levels for a further two years until April 2028. The nil-rate band will therefore remain at £325,000, the residence nil-rate band at £175,000, and the residence nil-rate band taper at £2 million. The Government will legislate for these measures in Autumn Finance Bill 2022.
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