After a solemn and eventful few weeks, the Chancellor’s speech this morning set the agenda for the new Government’s tax plans. The changes announced were much more extensive than expected, and include cuts to income tax and stamp duty land tax. Yesterday, he confirmed the anticipated reversal of the recent national insurance increase.
Sian Steele, Head of Tax at wealth management and professional services group Evelyn Partners, discusses the key changes affecting individuals:
Income tax and NIC rate changes
Two major changes to income tax were announced, both effective from April 2023. The 1% cut in the basic rate of income tax from 20% to 19%, planned for April 2024, has been brought forward by a year. From 6 April 2023, the additional rate of income tax paid by those with income over £150,000 will be abolished. The rates applying to that income will become 40%, or 32.5% for dividend income.
The immediate news affecting employed and self-employed individuals is the changes to NIC. The 1.25% increase to the rates of national insurance, which has applied since April 2022, will be reversed from 6 November. In a move which will be particularly welcomed by those on higher income levels, the income threshold at which NICs become due remains at £12,570, the level set by Rishi Sunak in July. While this will result in a saving for all those employees paying NI, it will be minimal for those on lower incomes.
The NI increases currently in force do not apply to those over state pension age, who were due to be brought into scope of the increased rate from April 2023 when the NIC increases were due to be formalised into a separate charge, the ‘health and social care levy’, This levy will no longer be introduced.
The 1.25% increase to the rate of income tax on dividends has also been reversed, with effect from 6 April 2023. This came in on 6 April 2022, so will only apply for one full tax year, 2022/23.
The annual investment allowance will be kept at the current enhanced level of £1million a year permanently. It was due to revert to £200,000 in April 2023. This means that businesses, including sole traders, will be entitled to relief on the cost of qualifying plant and machinery up to that enhanced level.
The reforms introduced in 2017 and 2021 (IR35) to the off-payroll working rules will be repealed from April 2023. Responsibility for determining employment status of workers working through an intermediary will revert to the worker, rather than lying with the company.
A planned increase in corporation tax rates, which would have increased the rate paid by the most profitable companies from 19% to 25% from 1 April 2023, has been cancelled. While generally those companies with profits under £50,000 would not have been affected by this change, family investment companies (FICs) and non-UK resident companies, such as corporate non-resident landlords, would have been subject to the increased rate regardless of profit level.
This will therefore be a welcome respite from the steadily increasing tax burden on structures with offshore companies owing UK property, especially those looking to restructure. Those with investment in FICs will be relieved that the tax burden is not increasing in the short term, although this remains an area where we could see future legislative changes introduced.
Stamp duty land tax (SDLT)
The threshold above which SDLT is due on a property purchase has been doubled from £125,000 to £250,000 with immediate effect.
The separate threshold that applies to first time buyers has been increased, from £300,000 to £425,000. It can now also be used on properties up to a value of £625,000, whereas the previous limit was £500,000.
These measures do not apply to Scotland and Wales, as they charge separate land transaction taxes.
This initiative is similar to the SDLT holiday introduced in the pandemic, but as it has no end date should not cause a similar rush to complete on property before the deadline.
Venture capital schemes
Changes to venture capital schemes have also been announced. The amount of investment that a taxpayer can obtain relief on under the Seed Enterprise Investment Scheme will be doubled to £200,000 a year. It has been confirmed that this scheme, along with the Enterprise Investment Scheme, will no longer cease in 2025 as per the sunset clauses in the legislation, but continue.
Although further tax announcements are expected to come later in the year, possibly in a November Budget, this fiscal event gives a good indication of the direction of travel of tax policy.
The Government is also conducting a review of the tax system in general, to identify areas where it can be made “simpler, better for families and more pro-growth”. The Chancellor will report on this next year. In her leadership campaign, Liz Truss stated more generally that she wanted to review the tax system to improve the position of those who are not working due to caring responsibilities for children or the elderly, so we are likely to see more on this.