The Chancellor’s Autumn Statement was delivered on 17 November with the premise to “ask more of those who have more”. While many predictions proved to be accurate, it was perhaps not as extreme as some may have feared.
Non-UK domiciled taxpayers were seen as a likely target but there was no indication of any changes or limitations to the existing rules. Additional rate income tax payers who briefly enjoyed the prospect of a tax cut, are now facing a tax hike with the threshold at which the additional rate tax of 45% kicks in to be reduced from £150,000 to £125,140; the level at which the personal allowance tapers away for high earners. The dividend allowance is to be cut from £2,000 to £1,000 next year and then to £500 from 6 April 2024.
While inheritance tax (“IHT“) might originally have been intended to tax only the wealthiest in society, the Chancellor’s announcement to freeze the tax free allowance at £325,000 until April 2028 (a total period of nineteen years) means many more estates will be taxable. This highlights the importance of lifetime IHT and estate planning generally.
Changes in the capital gains Tax (“CGT“) regime were anticipated, although perhaps more as an increase to the historically low rate at which it is currently charged. Instead the Chancellor chose to reduce the annual exemption from £12,300 to £6,000 in April 2023, with a further drop to £3,000 in April 2024. For trusts, the rate will be half the annual exemption – £3,000 in 2023 and £1,500 in 2024. With the current allowance in place for another four months, planning is again key.
It remains to be seen how effective these CGT measures are in filling the black hole in the economy. Although the reduction in these thresholds will increase the number paying the highest rate, it is likely to raise only a few hundred million pounds a year. With taxpayers controlling the timing of disposals and subsequent payment of CGT, and against a background of recession, a volatile stock market and a stalling property market, some query if this will raise the £1.8bn forecast.
The further freezing of tax thresholds until April 2028, on the other hand, does have the potential to raise a lot of money. Whilst the IHT tax free allowance freeze would raise only an additional £500m, the latest analysis from the Institute of Fiscal Studies shows that with inflation soaring and wages and pensions increasing as a result, maintaining the current freeze on income tax thresholds could raise £30bn for the Treasury over four years as a result of fiscal drag.
Although the current stamp duty land tax levels remain for the time being, the thresholds will revert to the previous lower levels in 2025, which the Treasury predicts will raise an additional £180m in 2024/25 rising to £1.635bn in 2027/28.
Meanwhile more money is being poured into resources for HMRC to make sure that individuals and businesses pay the tax they ought to pay. The additional resources are being used to strengthen HMRC’s approach to serious fraud, and to increase HMRC’s capacity to deal with complex tax risks amongst wealthy taxpayers, however, it remains to be seen whether these measures will bear fruit.
It is impossible to say whether the Chancellor will increase the tax burden again next year but in the current political and economic climate it seems improbable that tax cuts will be on the agenda again for some time.