ARTICLE
A rate of 25% will now apply to profits above £250,000, with the existing 19% applying where profits are below £50,000 and a marginal rate in between (3/200ths marginal fraction). The full 25% will apply to Close Investment Holding Companies. Also, the rates of dividend income tax will increase to 8.75%, 33.75% and 39.35 (basic, higher and additional rate respectively) from April 2023 – the planned mini-budget decrease by 1.25% also being cancelled.
Reducing the additional rate band to tally with the point at which the personal allowance is extinguished will clearly bring more individuals (around 1.1 million by 2025/26) into the additional rate and bring in a further £855 million by 2027/28. Politically, this also steals the thunder somewhat from Labour who were determined to reinstate the additional rate and at one point to increase
What survived the mini-budget?
The short answer – not much. The 1.25% increase in NIC rates were indeed reversed, and the SDLT changes remain (though only until 2025 now). What’s the significance of the autumn statement? What can we expect going forward? In many respects, this was the budget update which should have been given in September 2022. Whilst the mini-budget was a very Tory budget, it was clearly in the wrong environment and failed to ‘read the room’, the result of which was the market and pound crashing and a flourish of interest rate increases, as well as the King appointing a new Prime Minister and Chancellor of the Exchequer. Whilst cutting taxes was the aim of the government, it just didn’t suit the current economic situation; Jeremy Hunt’s counter-intuitive higher tax budget seems to be what was needed. It could have been more drastic – there were rumours swirling around about increases in the rates of CGT, reforms to inheritance tax, abolition of non-domicile (‘non-dom’) rules, none of which came about. The continued use of fiscal drag to raise revenue in the form of frozen income tax bands, personal allowance and the inheritance tax nil rate band were all anticipated, but the reduction of the additional rate band, and of the dividend allowance and CGT annual exemption was not something one would expect a Conservative chancellor to do – especially when considering his predecessor abolished the additional rate altogether!
"WHILST CUTTING TAXES IS THE ULTIMATE AIM OF ANY CONSERVATIVE GOVERNMENT, JEREMY HUNT'S COUNTERINTUITIVE
BUDGET SEEMS TO BE WHAT WAS NEEDED."
that to 50% and takes a bit of pressure off the Scottish government. The divergence between Scottish income rates higher rate band and that in the rest of the UK has been apparent for some time, but with the UK additional rate taking effect at £125,140 from 2023, with Scotland’s at £150,000, means that the higher tax burden in Scotland compared to the rest of the UK will lessen. The reduction in the dividend allowance will likely have relatively little effect on business owners (the corporation tax increase being more of a concern) – this allowance being aimed primarily at those individuals holding a small number of shares as investments. After April 2024, these individuals with dividends over £500 will have to inform HMRC of this income and start paying tax on it.
THE LEGAL CORNER MAGAZINE | ISSUE 002 JANUARY '23 | BANKING & FINANCE SPECIAL HB 20
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