Budget adjustments to consider afterwards
Headline: Autumn Budget 2022: Key Tax Changes Affecting Businesses and Investors
The UK government announced significant tax changes in the Autumn Budget 2022, affecting businesses and investors alike. Here's a breakdown of the key points:
Business Rates
Rateable values have been updated, leading to increased liabilities, particularly for retail, hospitality, and logistics sectors. This effectively raises business property taxes.
Employer National Insurance Contributions (NICs)
Employer NICs have increased by 1.2%, with a lower qualifying threshold. This will raise employment costs, particularly in labor-intensive industries.
End of Super-Deductions
Temporary enhanced capital allowances ("super-deductions") for business investments have ended, replaced by less generous reliefs. This move reduces investment incentives.
Dividend Tax Allowance Reduction
The dividend tax-free allowance has been cut sharply—from £2,000 in 2022 to £1,000 in 2023, then halved again to £500 in 2024. This means many more investors will pay tax on dividends, leading to an increase in dividend taxpayers and higher dividend tax liabilities.
Income Tax Threshold Freeze
The freeze on income tax personal allowances and higher-rate thresholds, extended beyond 2028, subjects more taxpayers to higher tax rates due to fiscal drag, impacting many investors with dividend and other income.
Pension Changes
From April 2027, pensions will form part of someone's estate for inheritance tax purposes. This means people who were planning to leave money in their pension to give tax-efficiently to family after death will need to revisit their finances. Some might choose to spend down their pensions as retirement income rather than leave them untouched to keep the rest of their estate below the inheritance tax threshold. Annuities might see an increased interest as people look to secure a guaranteed income while keeping their estate below the inheritance tax threshold.
Investment Strategies
Investors can still put money into ISAs and pensions tax-free and benefit from tax relief. They can perform a 'Bed and ISA' or 'Bed and SIPP' maneuver to move unwrapped investments into a tax shelter. However, this maneuver may incur a capital gains tax liability, but investors can mitigate this by using their annual £3,000 CGT allowance.
Investors are advised to make the most of their tax reliefs and allowances, including ISAs, pensions, and venture capital reliefs like venture capital trusts.
No Changes to CGT and IHT
The Chancellor, Rachel Reeves, did not raise employee national insurance, income tax, or VAT. She also kept capital gains tax (CGT) and inheritance tax (IHT) thresholds at their current levels.
Potential Future Changes
There were indications of potential further tax rises on capital gains, dividends, pensions, or business reliefs considered in subsequent budgets, but these were not formally enacted in Autumn 2022.
In conclusion, businesses faced higher property-related taxes and increased employer contributions, while investors faced higher dividend tax burdens due to allowance cuts and fiscal drag from income tax threshold freezes. It's crucial for businesses and investors to stay informed and seek professional advice to navigate these changes effectively.
[1] Gov.uk. (2022). Autumn Budget 2022: at a glance. Retrieved from https://www.gov.uk/government/publications/autumn-budget-2022-at-a-glance/autumn-budget-2022-at-a-glance [2] HMRC. (2022). Business Rates. Retrieved from https://www.gov.uk/business-rates [3] Resolution Foundation. (2022). Autumn Budget 2022: The Resolution Foundation's reaction. Retrieved from https://www.resolutionfoundation.org/media/press-releases/autumn-budget-2022-the-resolution-foundations-reaction/ [4] ICAEW. (2022). Autumn Budget 2022: Dividend tax allowance cut to £500 from April 2024. Retrieved from https://www.icaew.com/en/news/tax/autumn-budget-2022-dividend-tax-allowance-cut-to-500-from-april-2024 [5] ICAEW. (2022). Autumn Budget 2022: Income tax threshold freeze to continue. Retrieved from https://www.icaew.com/en/news/tax/autumn-budget-2022-income-tax-threshold-freeze-to-continue
- Individual investors may find it beneficial to consider adjusting their investment strategies, taking advantage of tax reliefs such as ISAs and pensions, and using the annual capital gains tax allowance when moving unwrapped investments into a tax shelter.
- With the reduction of the dividend tax-free allowance, more investors will be subjected to paying tax on dividends, leading to an increase in dividend taxpayers and higher dividend tax liabilities.
- As pensions become subject to inheritance tax from 2027, some investors might choose to spend down their pensions as retirement income rather than leaving them untouched to keep the rest of their estate below the inheritance tax threshold.
- Businesses in the retail, hospitality, and logistics sectors may need to reevaluate their finances due to increased business property taxes resulting from updated rateable values.
