The impact of the Autumn Statement for self-assessment taxpayers

This year’s Autumn Statement was highly anticipated – particularly given the financial chaos that followed the disastrous ‘mini budget back in October 2022. The current Chancellor, Jeremy Hunt, announced a new fiscal strategy that aims to deliver stability, growth and public services.

But with a cost-of-living crisis already affecting many people, and the announcement of a two-year-long UK economic recession, the year ahead is looking challenging. So, what have the main Autumn Statement measures done to relieve these financial pressures? And what will the impact be for your personal wealth and tax liabilities?

We’ve pulled out the key personal tax announcements for you.

The key personal tax measures from the Autumn Statement

These are the main personal tax and planning measures that we think you should be aware of:

• Income tax – Kwasi Kwarteng’s controversial removal of the top rate of income tax has already been reversed, keeping the basic rate (20%), higher rate (40%) and additional rate (45%) as the standard three-tier structure for income tax.
• Lower threshold for additional rate income tax – the big news was the lowering of the threshold for the additional rate of income tax. The 45% rate will now kick in for annual income in excess of £125,140 (currently it’s £150,000) bringing far more taxpayers into that top income tax bracket. The 40% higher rate now applies between £50271 and £125,140 and the basic rate is charged on income between £12,571 and £50,270.
• Stealth tax on personal income – the tax-free personal allowance remains at £12,570 and the income tax bands have been frozen until April 2028. At first glance, this sounds like good news. But the reality is that freezing the bands will result in many taxpayers paying more in the longer term. An increasing proportion of your income may be taxed over time, and potentially in higher tax bands, due to wage inflation.
• Inheritance Tax threshold – the inheritance tax (IHT) threshold will be frozen at current levels for a further two years to 2028. The tax-free threshold is £325,000 and residence nil rate band is £175,000.
• Capital Gains Tax thresholds – at present, your first £12,300 of gains are free of capital gains tax (CGT). This CGT-free allowance will now drop to £6,000 from April 2023 and £3,000 from April 2024 – meaning increasing amounts of CGT will be due on any gains you make from 2023 onwards.
• Dividends Tax thresholds – currently, your first £2,000 of dividend income is free of tax. This tax-free allowance will drop to £1,000 from April 2023 and £500 from April 2024, making it less tax-efficient to be paid dividends from your eligible company profits.
• National Insurance (NI) – the Class 2 rate of NI (flat rate for self-employed people) will increase from £3.15 to £3.45 per week from April 2023. The Class 3 (voluntary contributions) rate will increase at the same time to £17.45 from £15.85. These increases are in line with inflation, but will still add to your overall tax and NI costs at a time where cash is increasingly tight for many self-employed people.
• State Pensions – the State Pension will be increased by 10.1%, in line with inflation. This will restore the triple lock on pensions, giving some much-needed security to pensioners and those nearing retirement age.
• Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) – MTD for ITSA wasn’t mentioned in the Autumn Statement, but it’s likely that MTD for ITSA will stick to the planned timescales. From April 2024, self-assessment taxpayers earning over £10,000 p/a will need to sign up for MTD for ITSA. This means keeping digital records of all your income and expenditure, and submitting quarterly and annual digital returns to HMRC’s digital portal.

Talk to us about the impact of the Autumn Statement

If you think your personal wealth and tax planning will be affected by the Autumn Statement, please do come and chat to us. We can help you walk through the implications of the various tax measures and how planning could make you more tax efficient for 2023.

If you think you’ll be affected by MTD for ITSA, we’ll help you understand the implications. We’ll also introduce you to the right software to keep you compliant and in control of your numbers.