Chancellor Jeremy Hunt has outlined his plans for the UK’s taxation and spending in the 2022 Autumn Statement. In short, it’s not good news for your personal finances.
However, it’s important to be aware of the key changes announced and make sure you are as prepared as possible.
We may all end up paying more tax, but with careful planning we can minimise the impact on our personal finances.
Disclaimer: This is not designed to be a comprehensive guide to the Autumn Statement. Instead, it is an outline of the key points…
In this post I’ll cover:
Chancellor Jeremy Hunt, picture credit: UK Government
More income tax
The government has frozen the personal tax allowance for another two years, meaning it will remain unchanged at £12,570 until 2028.
This is essentially a ‘stealth tax’. Technically, the government hasn’t raised taxes. But with inflation at 11% in real terms you will be receiving a smaller personal allowance.
If you get a pay rise, more of that income will be taxed than if the personal allowance had raised at the same rate as inflation.
Income Tax has also been raised for high earners. The threshold for the top rate of tax (45%) has been lowered from £150,000 to £125,140.
For those earning over £150,000 this will cost them around £1,200 extra a year. Someone earning £130,000 a year will pay £243 extra a year.
Lower tax free allowances
Both the Capital Gains Tax allowance and the Dividend Tax allowance have been slashed.
The CGT allowance will drop from £12,000 to £6,000 in April 2023 to £3,000 a year later.
Meanwhile the Dividend Tax allowance will drop from £2,000 to £1,000 and will drop to just £500 from April 2024.
Assuming a dividend yield of 4% – which is around the average – this means anyone with an investment portfolio of over £12,500 will start to pay dividend tax.
This is something investors will have to be aware of going forward.
The impact for first time buyers
Chancellor Hunt also announced changes to Stamp Duty Land Tax (SDLT). This is the tax you pay when buying a home.
The SDLT cuts were one of the only measures to survive from the mini-budget.
However, this cut will now end in 2025. Previously, you paid SDLT on home purchases above £125,000 (£300,000 for first time buyers).
Currently you pay SDLT on purchases over £250,000 or £425,000 for first time buyers.
SDLT cuts may seem like a good thing, but they can stimulate the housing market a bit too much and push up prices. This can make it even harder for first time buyers to get on the property ladder, even with the tax saving.
UK in recession
The Chancellor also announced the UK is now likely in a recession.
This sounds scary. In reality, it means very little. All a recession means is there has been two consecutive quarters of negative growth. Recession is actually just a technical term.
Of course, the economic picture is bleak.
Inflation is now at 11.1%, while the cost of food has risen over 16% year on year.
The UK’s growth is also lower than most other G7 countries and is still negative when compared with pre-pandemic times.
However, the word ‘recession’ tends to cause fear and panic. Remember, it is just a word. The economic outlook is broadly the same as it was yesterday, before the Chancellor said the UK is now likely in a recession.
How you can prepare
This may all sound very negative. But it doesn’t all have to be bad.
The first thing to do is to re-look at your budget. Do any of the measures announced impact your income or spending? If so, make the necessary adjustments.
If you are going to be worse off, see if there are any ways you can make up for this deficit. Can you cut some subscriptions or discretionary spending? Could you make some extra income through a side hustle?
Equally, you may want to speak to your employer. Ask for a pay rise to account for these changes and ensure you do not end up with less take home pay than you did previously.
Of course, they are under no obligation to say yes. But if you don’t ask, you won’t get!
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