JEREMY Hunt has announced a raft of tax changes and spending cuts in his Autumn Statement today.
The Chancellor said the Budget puts the UK “on a balanced path to stability” as he tackles soaring inflation.
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But the big tax changes announced today will hit many households in the pocket.
Below, we explain what the changes mean for you, and how your finances could be affected.
Income tax
The Chancellor announced that the freeze on income tax thresholds will be extended to 2028.
The freeze was meant to come to an end in 2026 and extending it will drag millions more into paying a higher tax rate.
That is because inflation and rising wages will mean more workers go over thresholds for paying more tax and so will be no better off in real terms.
Thresholds are generally increased each year to take account of annual salary increases.
It means someone on the average UK salary of £33,000 paying almost £2,600 more thanks to the freeze.
This sneaky stealth tax is expected to bring in £30billion a year by 2026.
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A stealth tax is a form a tax collected in a way that isn’t obvious.
While the government doesn’t change the headline rate, you end up paying more money.
The basic rate of income tax currently kicks in on earnings over £12,571, and the higher rate of 40% at £50,271.
Here’s more detail on income tax and how it works.
Dividends
The Chancellor has halved the tax-free allowance for dividend income as he seeks to plug a £50billion shortfall.
The amount shareholders can earn in dividends before paying tax has been from its current level of £2,000 to just £1,000.
This will bring in an estimated £455 million for the Treasury.
The cut means millions of people will pay more tax, including pensioners, self-employed and business owners who pay themselves in dividends.
The dividend allowance has been £2,000 since the 2018.19 tax year. Before that it was £5,000.
The amount of tax you pay after the tax-free allowance depends on your tax rate.
- Basic rate: 8.75%
- Higher Rate 33.75$
- Additional rate: 39.35%
Inheritance Tax
The freeze on the nil-rate band for inheritance tax has been extended to 2027-28.
Currently, inheritance tax is paid at 40% on the value of the estate over the nil-rate band.
This has been set at £325,000 since 2009 and £650,000 for a couple.
Despite house prices going up the thresholds have remained the same.
It means more people have been forced to pay the tax as the nil-rate band has not kept up.
Capital gains tax (CGT)
Capital gains tax (CGT) is the money you pay to HMRC when you sell something that has gone up in value, such as stocks and shares, artwork or even a second home.
Historically, the rates you pay are quite low and there are lots of exemption.
Hunt has cut the CGT threshold from £12,300 to £6,000.
It will then be cut again to £3,000 from April 2024.
The rises mean that people will pay more tax if they make money from selling and asset.
Stamp Duty
In his budget, Hunt confirmed that the cut to stamp duty will end in 2025.
He had said that it would remain in place but as part of his measures to get the economy back on track, Hunt has cut stamp duty.
Stamp Duty land tax (SDLT) is a lump sum payment you have to make when purchasing property over a certain threshold.
Ex-Chancellor Kwasi Kwarteng announced the cut to Stamp Duty in his mini-budget in September in a bid to boost economic growth.
Before the cut, no Stamp Duty was paid on the first £125,000 of any property purchase.
That’s now double at £250,000 for all home purchases.
The threshold at which the duty was paid for first-time buyers was £300,000. But that is now £425,000.
Meanwhile Hunt confirmed that millions of households on benefits including Universal Credit will get a payment boost worth hundreds of pounds next year.
And the Chancellor also announced increases to council tax bills – here’s what it means for you.
