On Friday 23rd September the Chancellor of the Exchequer, Kwasi Kwarteng, announced his “Growth Plan” aimed to kickstart the UK economy and which he claims to be the biggest tax cuts in a generation. As usual, our note is not intended to provide a commentary on the Budget itself but just to outline and summarize the areas relevant to financial planning and our clients, of which this Mini-Budget is quite dense. This summary relates to the changes in England only and rules may differ in other parts of the UK. To read a more detailed summary of the announcement please click here.
Income Tax
- Cut in basic rate of income tax from 20% to 19% from April 2023
- 45% higher rate of income tax abolished
- One single higher rate of income tax of 40% from April 2023
- Taxpayers that qualified previously as additional rate taxpayers will qualify for a £500 personal savings allowance from April 2023
Dividend taxation
- Dividend tax rate reduced by 1.25% from April 2023
- Tax rates will return to 7.5% for basic rate tax and 32.5% for higher rate tax. The additional rate of dividend tax will be abolished from April 2023
National Insurance
- Reverse of recent 1.25% rise in National Insurance contributions from 6 November
Stamp Duty
- No stamp duty on the first £250,000 of the value of the property (this is twice the current threshold). For first-time buyers, the £0 rate band rises from £300,000 to £425,000. The change is already operational.
Corporation tax
- Cancelled UK-wide rise in corporation tax to 25%. Corporation tax will remain fixed at 19%.
VCTs and EISs
- The tax relief on VCTs, EISs and SEISs schemes has been extended beyond the planned exit in 2025. Currently, there is not a set end date.
Pensions and tax relief on pension contributions
The planned reduction in the basic tax rate and the removal of the additional rate tax band comes with a consequence on the tax relief available on pension contributions.
Basic rate tax relief
The Government announced a one-year transitional period for pension schemes operating the relief at a source method of claiming pension tax relief: schemes can continue to claim 20% tax relief on pension contributions until 5 April 2024.
This will benefit members of pension schemes operating relief at a source method but means that those contributing to occupational pension schemes where the employer operates the net pay arrangement, will get 1% less tax relief on their pension contributions for the 2023/24 tax year.
Additional rate tax relief
With the abolition of the additional rate tax band from 6 April 2023 it will no longer be possible to claim additional rate relief of 45% on pension contributions – the maximum rate of tax relief available will reduce to 40% from April 2023.
Other matters
The Budget also introduced other changes mainly aimed at supporting business and boosting growth, like VAT-free shopping for overseas visitors, increasing the maximum allowed investment in the UK sector for pension schemes and freezing of the Annual Investment Allowance for qualifying plant and machinery to its current levels of £1m.
We only briefly mentioned these as they are less relevant to personal financial planning and more relevant to businesses. However, if you have any queries regarding the Mini-Budget and the possible impact on you on your business, please do not hesitate to get in touch.
Levels, bases and reliefs from taxation may be subject to change.