>
Chancellor Jeremy Hunt announced changes to income tax, inheritance tax and utility bill support, among other things, in today’s fall statement.
At a glance, the personal allowance, the reduced rate increase threshold, the main national insurance contributions and the inheritance tax will all be frozen for a further two years, until April 2028.
This move captures millions more in higher tax brackets and will add billions to the government’s coffers.
In addition, the chancellor announced the revision of the state pension age to be published in early 2023, but confirmed that the government is sticking to the triple lock for pensions, which will see state pension benefits rise by 10.1 percent.
Chancellor Jeremy Hunt has announced new fiscal policies to manage the “black hole” in the country’s finances, which he calls £55 billion.
Hunt claimed in his speech that his plan will lower energy bills and lead to higher growth.
The UK is now in recession, according to the Office of Budget Responsibility, and inflation will be around 7.4 percent next year, before falling in the second half of the year.
The Chancellor went on to say that OBR says that because of its announcements, the recession will become shallower and inflation will ease.
We look at what has changed and what the measures that have been brought under the statement can mean for you.
Freeze income tax thresholds
The current income tax brackets are already frozen until 2026, but the Chancellor has now extended this freeze until autumn 2028.
This means more people will be covered by the system, pay income tax for the first time or move into a higher bracket as incomes rise over the next six years. It is estimated that the freeze will give the Treasury an additional £5 billion over the next two years.
The move means anyone in England or Northern Ireland earning £12,571 to £50,270 will pay 20 per cent tax on income in that bracket for the next five years.
Above that, income from £50,271 to £125,140 is taxed at 40 per cent, and anything above that at 45 per cent, ignoring the effect of non-salary income.
According to the most recent data from the Office for National Statistics for June to August 2022, the current average annual growth rate for regular wages is 5.4 per cent in the UK.
How will the tax increase affect you?
Wealth management Quilter calculated the changes in tax payments due to the income tax freeze announced today
Calculations by wealth management firm Quilter estimate that if wages rise by an average of 5 per cent a year over the next five years, but income tax thresholds remain frozen, someone earning £35,000 today will be £695 worse off in the 28/29 tax. years and cumulatively £2,016 poorer over the five-year period.
Similarly, if you earn £50,000 today, you will be £3,403 worse off in tax year 28/29 and a total of £9,765 poorer over the five-year period.
If thresholds remain frozen for a number of years, you will eventually pay considerably more tax
Shaun Moore, financial planner
However, if wage growth were 3 per cent a year over that period, someone earning £35,000 today would still be £400 worse off in tax year 28/29 and £1,178 poorer over the five-year period if the income tax thresholds would remain frozen.
And a person earning £50,000 would be £1,939 worse off in tax year 28/29 and £5,592 poorer over the five-year period.
Shaun Moore, chartered financial planner at Quilter says: ‘These calculations illustrate the power of tax burdens and how freezing income tax thresholds is a form of hidden taxation.
‘If thresholds remain frozen for a number of years, you will eventually pay considerably more tax.’
Raising the tax rate from 45 pence and lowering the threshold
As well as freezing income tax bands, Jeremy Hunt has lowered the threshold at which you pay the top tax rate of 45p and changed the rate paid by the highest earners.
The top tax rate is now paid by those earning £125,140 rather than those earning £150,000 or more.
The move comes just weeks after then Prime Minister Liz Truss announced a reduction in the 45p tax rate paid by those with the highest incomes. The quick reaction to her plans led to a turnaround at the Tory Party Conference last month.
However, no changes have been made to the 60 per cent tax rate on income between £100,000 and the 45 per cent threshold – now £125,140.
Anthony Whatling, tax partner at asset management and professional services Evelyn Partners, says: ‘The threshold at which the top rate of income tax is paid has been frozen at £150,000 since its introduction in 2010.
Initially it was paid by 236,000 workers, but now it is paid by 629,000 – and with the threshold lowered to £125,140 it is estimated that this number could now rise by a further 246,000.
“Most taxpayers can’t do much about this. One way to reduce exposure to higher and additional income taxes is to pay pension contributions, as they currently offer tax relief at the marginal rate.
“Those who have the option to contribute to their pension through salary sacrifices should certainly consider this, because in addition to income tax, this system offers an exemption from national insurance.”
Inheritance tax freeze until 2027/8
Changes to Inheritance Tax (IHT) have been publicly put forward as a way for the government to increase its tax revenue. HMRC collected a record £6.1 billion from tax in 2021/22, 14 per cent more than in 2020/21.
HEATHER ROGERS ANSWERS YOUR TAX QUESTIONS
The increase is due in part to the surge in house prices, which means more estates are now crossing the threshold at which they pay the tax.
Currently, no IHT is payable if the deceased’s estate, including assets such as money, property or shares, is less than £325,000.
The threshold was scheduled to rise in 2025-26, but following today’s fall statement, it is now pushed back to 2027-2028.
The move will bring an extra billion to the government’s pot, according to Quilter.
In addition, Quilter adds that since the amount you are allowed to gift has not increased with inflation, the opportunity for people to reduce what their estate pays in estate taxes has decreased.
If the zero tax rate for inheritance were to rise with inflation, it would rise to £338,000 in 2026/27 and £351,520 in 2027/28.
Paul Barham, partner at accounting firm Mazars commented: ‘The stealth attack on estates continues with the zero rate band now frozen until 2028. Excluding the significant increases in house prices and other assets, the threshold will be almost two decades away.
“It has and will continue to affect millions of unsuspecting families who never expected to receive an IHT bill.”
Rise in national living wages and benefits to keep pace with inflation
The chancellor has confirmed that the national living wage will be raised from £9.50 an hour for over-23s to £10.42 from April next year.
It goes up every April, increasing the wages of about two million people.
At the same time, benefits will increase by 10.1 percent next year, in line with inflation. The move will cost £11 billion and mean an income increase for 10 million working-age households across the country.
Changes support energy bill
When first appointed chancellor, Jeremy Hunt said he would review the government’s energy price guarantee, which is expected to expire in April.
Currently, household energy prices are being reduced, so the typical household is expected to pay around £2,500 annually, thanks to a cap on the price of energy per unit for customers.
However, Hunt has announced that the guarantee will be kept from April, but the ceiling will go up – meaning the average household will now pay just over £3,000 a year for their energy for the next 12 months.
However, this may change depending on the wholesale price energy suppliers pay for oil and gas.
It means an average of £500 in energy bill support for every household in the country, Hunt said.
For pensioners there will be an additional £300 in 2024 to help with energy bills, £900 for those on means tested benefits and £150 for those on disability benefits.
Stamp Duty Changes
Homebuyers celebrated after former Chancellor Kwasi Kwarteng took an ax to stamp duty in his ill-fated mini-budget in September.
Kwarteng had lowered the house price threshold below which buyers do not have to pay stamp duty from £125,000 to £250,000.
It meant movers would save up to £2,500, and every year 200,000 homebuyers would pay no stamp duty at all.
But today Hunt announced that this cut is only temporary and will end on March 31, 2025. After that date, the increased tax relief will be phased out.
Pension triple lock remains
Among the announcements was good news for pensioners, as Hunt and Prime Minister Sunak have maintained pensions’ triple lock, meaning state pensions will continue to rise in line with inflation.
In September inflation reached 10.1 percent for the second time this year and this figure will probably be used as the basis for pension increases.
>> More about what the Autumn Declaration means for pensioners
Windfall tax on oil and gas
As energy companies continue to report big increases in profits, Hunt has increased the so-called windfall tax (real name ‘temporary energy profit tax’) on energy giants from 25 percent to 35 percent.
This will raise the oil and gas sector’s effective tax rate on UK profits from 65% to 75%. Hunt also extended the duration of the tax by an additional two years, keeping it in effect until 2028.
In addition, electricity generation companies have been hit by a 45 percent levy on the extra profit they make above a certain price per megawatt hour.
Together, the measure will raise £14bn for the Treasury next year, Hunt said.
Some links in this article may be affiliate links. If you click on it, we may earn a small commission. That helps us fund This Is Money and use it for free. We do not write articles to promote products. We do not allow any commercial relationship to compromise our editorial independence.