The Chancellor is “asking more from those who have more” with the tax measures announced in the Autumn Statement.
While this is most notable in the reduction to the additional rate threshold, the measures fall short of the more substantial policy changes that had been anticipated for high net worth and non-UK domiciled individuals. Many thresholds and bands have been frozen, in what is a case of the government seeking to use the effects of fiscal drag to increase the taxation burden on households in order to help balance the books.
Rates and allowances
While there has been no change to income tax rates, from 6 April 2023 the threshold at which the 45% income tax rate becomes payable will reduce from £150,000 to £125,140, resulting in an additional £1,243 of income tax for those with income above £150,000, as well as increasing the pool of taxpayers paying income tax at the highest rate. Scottish taxpayers should note that this change will not affect their non-savings, non-dividend income: rates and thresholds for that are set by the Scottish government, which is set to deliver its Budget statement in December.
The dividend allowance, which is a 0% tax band for dividend income, will decrease from £2,000 to £1,000 from April 2023, then again from £1,000 to £500 from April 2024. In a similar fashion, the annual exempt amount for capital gains tax will decrease from £12,300 to £6,000 from April 2023, then again from £6,000 to £3,000 from April 2024. While both these measures are likely to affect wealthier taxpayers, the reduction in the capital gains annual exempt amount in particular is unlikely to raise a great deal of tax from high earners, especially compared to the speculated alignment of capital gains tax rates with income tax rates that some in the press had anticipated. Those who are potentially affected by the changes, and are in a position to realise capital gains or advance income ahead of 6 April 2023, may be able to benefit from some tax savings – although this will depend on individual circumstances.
The Class 2 and Class 3 National Insurance rates will be uprated for the 2023-24 tax year for those who are self-employed or making voluntary contributions, with Class 2 increasing from £3.15 to £3.45 per week, and Class 3 increasing from £15.85 to £17.45 per week. Class 1 National Insurance (payable by employees and employers) and Class 4 National Insurance (also payable by those that are self-employed) will remain unchanged.
The higher rate threshold, personal allowance, National Insurance thresholds, and nil-rate bands for inheritance tax (IHT) are already fixed at their current level until April 2026, and will now remain fixed for a further two years until April 2028.
While changes to the Married Couple’s Allowance and Blind Person’s Allowance are likely to affect only a small percentage of taxpayers, both allowances are being uprated for the 2023-34 tax year. The value of the Married Couple’s Allowance will increase to between £4,010 and £10,375 (currently it is between £3,640 and £9,415), and the Blind Person’s Allowance will increase from £2,600 to £2,870.
Stamp Duty Land Tax (SDLT)
The Autumn Statement confirmed that the SDLT reductions implemented in the mini-Budget with effect from 23 September 2022 will remain, but only until 31 March 2025. The reductions were:
- Increase in the SDLT ‘nil rate’ band, from £125,000 to £250,000.
- Increase in the ‘nil rate band’ for first-time buyers, specifically from £300,000 to £425,000.
- Increase in the cost of property qualifying for First Time Buyer’s Relief from £500,000 to £625,000 (though the standard rates will apply to properties costing more than £625,000).
These measures apply to residential property only, and although principally aimed at first time buyers, the increased nil rate band benefits most purchasers of residential property, whether that is the purchase of property to live in or for investment as buy to let property. This is still the case.
Avoidance and evasion
The Chancellor acknowledged in his speech that government departments will need to cut budgets, and HM Revenue & Customs (HMRC) is no exception. However, the Autumn Statement did specifically include additional funding of £79 million for HMRC over the next five years, for additional staff to tackle serious tax fraud and compliance risks among wealthy taxpayers. This shows that tax compliance activity will be a priority for the government over the coming years.
There was also a new measure announced, intended to remove a potential advantage for non-UK domiciled taxpayers undertaking share-for-share exchange transactions. The general position is that, where an individual undertakes a share-for-share exchange, specific capital gains tax reorganisation rules operate to prevent a ‘dry’ tax charge (ie a tax liability where there are no cash proceeds). The effect is the new shares ‘stand in the shoes’ of the old shares and no immediate capital gain arises.
Where the new shares are in a non-UK company and are held by a non-UK domiciled individual, the rules have to date provided an additional benefit: the remittance basis could apply to future dividend distributions and gains on disposals of the shares, so there is potentially no UK tax exposure (unless the proceeds are brought back into the UK). The shares in the non-UK company are also outside the scope of UK IHT.
Legislation will be introduced in Finance Bill 2023 to bring such non-UK company securities into the UK tax net. For the new rules to apply, the companies involved must be close (broadly, controlled by five or fewer people, or would be if they were UK companies) and the individual must hold at least 5% of the securities in the UK company before exchange and in the non-UK company afterwards.
Under the new rules, where the new shares are disposed of by a UK resident but non-domiciled individual, they will be unable to claim the remittance basis and any gain will be subject to UK capital gains tax, whether or not the proceeds remain abroad. The new shares continue to be treated as UK assets if disposed of to a spouse or civil partner. Individuals can elect out of the provisions and pay capital gains tax based on the market value of the UK shares/securities at the date of the exchange. The election must be made before the first anniversary of 31 January following the tax year in which the reorganisation takes place.
For income tax, dividends and other distributions received from the non-UK company, shares will not be considered relevant foreign income, so a UK resident non-domiciled individual will be unable to claim the remittance basis on that income and it will be subject to UK income tax.
At this point there is no mention of IHT in the draft legislation, which suggests the shares will still remain non-UK assets for IHT. This appears anomalous and may change once the final legislation is published. The legislation will have effect for share exchanges or schemes of reconstruction carried out on or after 17 November 2022.