Since I first published this post – just three weeks ago – the government has u-turned on pretty much every proposal detailed below in the mini budget.
The new UK government has unveiled its economic plans to help the country recover financially. The mini budget u-turn will likely impact most of us. But, what does the mini budget u-turn mean for your personal finances?
Read on to find out…
Disclaimer: This is not meant to be a comprehensive guide of everything covered. Instead, it is designed to give you an overview of the key information and how it will impact your budget.
- Income Tax changes
- Stamp Duty cut
- National Insurance Contributions
- Energy bills
Income Tax changes
For all taxpayers there is no longer good news in the form of Income Tax.
While new Chancellor Jeremy Hunt claims he is still committed to reducing the basic rate of income tax from 20% to 19%, this is no longer on the cards right now.
Workers would have paid 1% less tax on anything you earn between £12,751 and £50,000.
This reduction would have saved a person earning £20,000 a year around £160, according to EY analysts.
A more popular u-turn in the mini budget was the scrapping of the highest 45% tax rate.
Those earning more than £150,000 a year will have to keep paying 45% tax on those extra earnings.
It’s important to note these changes do not apply to Scotland.
The government originally claimed this will boost economic growth which in turn will benefit those at the lower end of the wealth scale. However, many disagree with the ‘trickle down economics’ theory – and it appears the government have been forced to accept this too.
Stamp Duty cut
The Stamp Duty cut is one of the few measures which is set to say. Critics say this is because it’s too far along to reverse it now.
Stamp Duty is the tax you pay when buying properties.
The threshold at which buyers have to pay the duty will rise from £125,000 to £250,000.
Previously, the first £125,000 of a property’s value was tax free. Buyers were then charged 2% of the value of the property above that threshold up to £250,000, and 5% on the portion between £250,001 and £925,000.
For first time buyers, the threshold has risen even further.
The level at which first-time buyers have to pay stamp duty will rise from £300,000 to £425,000 in a move to increase home ownership. Under the plans, the first-time buyer relief will be applicable to properties worth up to £625,000, compared with the current £500,000.
This could save the average first time buyer in London over £11,000, according to data from HM Treasury and The Guardian.
At a first glance, this seems like good news. You will save money on home purchases.
However, sadly it is not quite as simple. During the last Stamp Duty holiday, the property market was boosted so much that it actually increased house prices.
This is great news for those wanting to sell their homes or for those that already own them. But for those who don’t, it risks making getting on the property ladder even more unattainable.
National Insurance Contributions
Mr Kwarteng fulfilled promises to reverse the rise in National Insurance payments introduced by Boris Johnson’s government to pay for social care and tackle the NHS backlog.
Chancellor Jeremy Hunt has also agreed to keep this change. It is a relatively small measure and doesn’t cost the government too much.
In fact, it only takes National Insurance Contributions to the level they were at earlier this year.
Again, those who earn more stand to save more from this. Someone earning £20,000 will pay £93 less and someone on £30,000 will save £218.
However, someone on £50,000 stands to save £468 and a £100,000 earner will pay £1,093 less tax.
The government is going to end the energy price cap sooner than expected. It has only committed to the current price cap (£2,500 for the average household) until April.
After that, the government said it will “review” the support measures.
For those worrying about paying their energy bills, this increased uncertainty will be a worry.
For now, we simply have to wait for more information sadly.
Frustratingly, it seems likely the political chaos in the UK is far from over. Therefore we will have to wait a while to see which measures actually end up being implemented…
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