What does the Autumn Statement mean for you?

With living costs soaring, thanks to the highest rate of inflation for over 40 years, but with a budget black hole to fill, Chancellor Jeremy Hunt tried to pull off a balancing act in his Autumn Statement to promote stability and rebuild the economy, while protecting public services and supporting the most vulnerable in society. But how will the tax changes, spending cuts and other measures announced in the Statement impact your finances?

As the third Chancellor in as many months, Jeremy Hunt had an unenviable task when delivering his Autumn Statement on 17 November. With the economy suffering from the continued impact of Brexit, the aftermath of the coronavirus pandemic, and the ongoing fallout of the war in Ukraine, as well as the disastrous financial consequences of September’s mini-budget, and the UK facing “a prolonged period” of recession according to the Bank of England, setting out a fiscal plan that restored the UK’s credibility with markets, tackled the cost of living crisis and promoted growth was a tall order. So what were the key announcements?

Taxation 

There were several changes to taxation announced in the Autumn Statement.

Income tax

One of the main ways the Chancellor hopes to raise funds for Government spending is through changes to income tax. The tax bands had already been frozen until 2026, but this was extended for two more years meaning they will stay the same until April 2028, rather than going up with inflation as is normally the case. 

The Chancellor also announced a reduction in the threshold for the additional rate tax band, from April 2023, when the 45% rate will apply to those earning over £125,140.

From April 2023 until April 2028, the income tax bands for those working in England, Wales and Northern Ireland will be as follows:

BandCurrentFrom April 2023Tax rate
Personal AllowanceUp to £12,570Up to £12,5700%*
Basic Rate£12,571 to £50,270£12,571 to £50,27020%
Higher Rate£50,271 to £150,000£50,271 to £128,14040%
Additional Rateover £150,000over £128,14045%

The personal allowance of £12,570 is the amount most people can earn without paying tax.  However, this amount reduces by £1 for every £2 that your adjusted net income is above £100,000 and you don’t get a personal allowance at all if you earn over £125,140. Your adjusted net income is your total taxable income less certain tax reliefs such as trading losses, pension contributions and charity donations – we’ll come back to this later. 

Although you might think that freezing the tax bands won’t have much effect on your finances, over time it could have a significant impact. The Office of Budget Responsibility (OBR), which independently assesses the government’s finances, estimates that freezing the thresholds and lowering the additional rate band will create 3.2 million new taxpayers, and 2.6 million more people will pay higher rate tax. 

Capital Gains Tax (CGT)

The CGT annual allowance for all UK taxpayers will be reduced to £6,000 in 2023-24, down from £12,300.  The allowance will be cut again in 2024-25 to £3,000.  No changes were made to the CGT tax rates above these allowances. These remain at 18% for basic rate taxpayers and 28% for those in higher bands on gains from residential property that isn’t your home, and 10% for basic rate taxpayers and 20% for those in higher bands on gains from other chargeable assets, which includes shares outside of an individual savings account (ISA) and most personal possessions worth £6,000 excluding your car.

The Finance Bill 2023 will introduce a new anti-avoidance rule.  Holdings of material interests (more than 5%) in shares and securities in non-UK companies which were acquired on or after 17 November 2022 via an exchange for shares in a UK close company will be deemed to be located in the UK. Non-UK-domiciled individuals will now be prevented from claiming the remittance basis to avoid UK tax on such gains and distributions received in respect of the non-UK shares. This can be a complex area, so speak to your adviser if you have specific concerns.

Inheritance Tax (IHT)

The inheritance tax (IHT) threshold has been frozen. The ‘nil-rate band’ – the amount that can be passed on before IHT is due at a rate of 40% – will stay at its current rate of £325,000 until April 2028. This will likely result in more estates becoming liable to IHT due to rising house prices and inflation.

Council Tax

Your Council Tax may also be set to increase, with councils in England now allowed to increase bills by as much as 5% next year. The Treasury expects 95% of councils to go ahead with the full increase, which, according to the OBR, will see the average Band D bill of £1,966 per year rise by £250 in the next five years.

Car tax

From 2025, electric vehicles will no longer be exempt from road tax. The running costs of petrol and diesel cars look likely to rise from March 2023, when the one-year 5p cut in fuel duty from the Spring Budget earlier this year comes to an end, 

Tax relief

There are ways you can legitimately reduce your tax bill by making the most of the various tax relief options available from the Government. As well as the CGT and IHT allowances outlined above, other ways to minimise tax include holding your investments in tax wrappers like ISAs and self-invested personal pensions (SIPPs) and using the personal savings allowance (PSA), which allows basic rate taxpayers to earn £1,000 in savings interest, and higher rate taxpayers £500, without paying tax.  In addition, married couples and those in a civil partnership can benefit from the Marriage Allowance, allowing those earning below £12,570 to transfer up to £1,260 of their Personal Allowance to their spouse or partner. This reduces the higher earners’ tax by up to £252 in the tax year. 

Salary sacrifice schemes can also help lower your current taxable income, e.g. childcare vouchers and increasing your pension contributions into workplace pension schemes. The government currently provides tax relief on pension contributions at the highest rate of income tax you pay -higher and additional rate taxpayers need to claim additional relief through the self-assessment process. Your adviser can help you navigate the various tax relief options and allowances available.

Energy Bills

As well as increasing the tax take, the Chancellor did provide some financial support to households struggling with higher living costs. Since October, thanks to the Energy Price Guarantee limiting the price we pay for each unit of energy used, the average household pays £2,500 for gas and electricity per year. This Guarantee will end in April, to be replaced with a new one-year cap which will see average households pay £3,000 per year. You pay according to how much you use so improving your energy efficiency as much as possible is a good idea.

All households have also benefited from a £400 discount on energy bills spread over six months from October. This grant will end in April, to be replaced with more targeted support in 2023, including £300 for pensioner households.

State Pensions

In other good news, the Chancellor confirmed that this year the triple lock is back and the state pension will rise in line with inflation next April at 10.1%.  The ‘new’ state pension, currently worth £185.15 a week, will increase to £203.85 from April. The basic state pension, for those who reached state pension age before April 2016, will rise from £141.85 a week, to £156.20. 

Next steps

The Autumn Statement is likely to have an impact on most people’s finances. If you have any concerns or would like to review your financial plan, we’re here to help, so please contact your adviser to arrange a chat.