As expected the Chancellor made no new announcements in relation to income tax, capital gains or Inheritance Tax in his Spring Budget, focusing instead on the country’s productivity issues, with measures to get people back into work.
He introduced a range of measures from pension changes and personal midlife MOTs to ‘returnerships’ for those over 50 in an effort to entice people who have either retired early or struggle to find work.
However, it is only a few months ago that, following a giveaway in the September mini-budget, Jeremy Hunt had to reset the tax clock and increase taxes to their highest level for decades. Therefore, from April the following changes will affect individuals.
Income Tax
Firstly, Income Tax personal allowances are frozen until 2028 at their current level of £12,570. Similarly, the basic rate tax band will remain at £37,700 until 2028. Hence taxpayers are liable to 40% tax on incomes over £50,270. The consequence, known as fiscal drag, will result in a greater number of taxpayers paying 40% income tax, even if their earnings merely increase by inflation over this period.
Higher earners also face an increased liability. Previously, the additional rate of 45% was only paid if taxable earnings exceeded £150,000. This threshold is reduced to £125,140 from 6th April 2023, meaning these taxpayers will pay tax on all their income with no personal allowance.
Child Benefit
Families claiming child benefit are also increasingly likely to be liable for the High Income Child Benefit Charge, which claws back the child benefit through increased taxes when either parent’s income exceeds £50,000. This threshold has never increased since its introduction in 2012.
Dividends
Until 2018, there was no income tax liability unless an individual received dividends in excess of £5,000 in a tax year. This reduced to £2,000 in April 2018 and is now reducing to £1,000 on 6th April 2023, before further reducing to just £500 in April 2024. A basic rate taxpayer pays 8.75% on dividends in excess of this threshold, a higher rate taxpayer 33.75% and the highest rate taxpayers 39.35%. These levels were increased by the 1.25% that was introduced as the forerunner to the now scrapped Health and Social Levy on National Insurance in September but was not removed on dividends. This reduction in the dividend allowance to just £500 will mean that people who have never completed a tax return before will need to register and complete a tax return to pay this additional tax.
Capital Gains Tax
The Capital Gains Tax Annual Exemption removed the need for taxpayers making small gains to have to report them to HMRC. This exemption is currently £12,300 but reduces to £6,000 on 6th April 2023 and to just £3,000 in April 2024. The result of this is that more gains, and of course tax, will need to be reported to HMRC and again more taxpayers will need to complete a tax return.
Fuel Duty
In at least some good news from the budget, the Chancellor announced a further freezing of fuel duty for another 12 months, including the retention of a 5p per litre cut. Normally fuel duty increases by inflation each year.
Whilst this budget did not contain many tax changes, individuals will feel the effects of Mr Hunt’s changes, both this week and last November, for many years to come.
Watch our Spring Budget Analysis Webinar to hear what experts from our tax, financial services and accounting teams thought about the changes announced and how they could impact you and your business.
