In Kwasi Kwarteng’s first Budget as Chancellor he hailed a ‘new era’ for the UK, unveiling the biggest package of tax cuts in 50 years, worth around £45bn. It’s fair to say that the markets have gone into meltdown on the news — mainly because no one knows how these cuts will be funded. Here’s the lowdown on the changes that impact your personal finances.
Kwarteng scrapped the 45% additional rate income tax band for those earning more than £150,000. The 40% higher rate, charged on incomes above £50,271, will remain.
According to Treasury estimates, the move would have saved top earners an average of £10,000 a year. However, after a week of protests from MPs as well as negative reactions such as the value of the pound plummeting, he decided to reverse his decision, meaning that the 45% tax rate will remain in place after all.
The Chancellor also announced plans to bring forward a cut in the basic rate of income tax from 20% to 19% to April 2023.
The moves could trigger a dash by higher earners to pile money into their pensions while they can still get relief at 45% on the cost of saving for their retirement. Equally basic rate taxpayers might decide to add more to their pension before their rate of income tax is cut.
Workers and employers have paid an extra 1.25p in the pound since April. The Chancellor reversed the recent rise in National Insurance (NI) which will take effect on 6 November. The Treasury said the change would save nearly 28 million people an average of £330 a year.
Stamp duty has been cut for property buyers in England and Northern Ireland, effective immediately. There is now no stamp duty to pay on the first £250,000 of a property’s value, doubling the previous threshold of £125,000.
The threshold for first-time buyers will rise from £300,000 to £425,000. And the maximum property value for first-time buyers’ relief will rise from £500,000 to £625,000.
While such cuts can persuade more buyers to take the plunge, it could also push property prices higher as sellers look to cash in on buyer’s savings. This makes getting a mortgage more expensive – and potentially harder in affordability terms.
The Chancellor announced plans to reverse the 1.25% increase to income tax on dividends first introduced in April 2022. He also revealed that he would scrap the top rate so that there would be just two levels. From next April, rates revert to 7.5% for basic-rate payers and 32.5% for higher-rate payers.
The move to abolish the 1.25% surcharge will save those receiving dividends £1.4bn in the next tax year, according to Government costings.
Those earning over £150,000 a year will see their dividend tax rate cut from 39.35% this year to 32.5% next year. This represents an 18% reduction in the rate of tax these investors and company directors will pay. This could result in some company directors who pay themselves via dividends deferring their payouts until next year to benefit from the lower tax rate
Tax reliefs on Venture Capital Trusts (VCTs), Enterprise and Seed Enterprise Investment Schemes (EIS and SEIS), due to end in 2025 were extended.
The Seed Enterprise Investment Scheme (SEIS) has also seen its investment cap increased to £250,000 (from £150,000), the annual investor limit will be doubled to £200,000 and the age limit of the business extended from two to three years.
This means investors have certainty that they can access the generous tax perks offered, including 30% income tax relief, beyond 2025.
Tax relief on EIS and SEIS schemes is particularly good news for us here at Comparetheplatform.com, as we’re fundraising to scale the business. If you’d like to find out more about our proposal, visit Envestors.