How much tax will you pay after the Autumn Statement?
Changes to income tax, capital gains tax and dividend tax were among the announcements made by Jeremy Hunt in his Autumn Budget - but what will it mean for your tax bill?
Chancellor Jeremy Hunt announced a series of allowance freezes, spending cuts and tax increases worth £55bn as part of his Autumn Budget to raise money for the government as the country grapples with the rising cost of living amid rampant inflation.
The latest figures from the Office for National Statistics showed inflation in the UK hit a 41-year high of 11.1% last month, and in his statement Hunt declared the UK has officially entered a recession.
The Office for Budget Responsibility estimates the recession will last over a year, and forecast a 7% drop in household incomes over the next two years. That marks the biggest fall in living standards since records began.
The Autumn Statement follows last month’s chaotic mini-Budget by former chancellor Kwasi Kwarteng, and Hunt’s subsequent undoing of most of its policies. We have broken down the entire Autumn Budget and what it means for your finances – but more specifically, what does it mean for your taxes? We take a look at the changes below.
Income tax – how much will you pay?
In a bid to get more from those who earn more, Hunt lowered the threshold at which the 45% tax rate kicks in. The 45% rate of income tax previously applied to anything earned over £150,000. From April, the 45% tax will be charged on anything over £125,140. This will remain the case until 2028.
The 20% income tax rate, paid on anything earned over £12,570, and the 40% income tax rate, which kicks in at £50,270, will also be frozen for the next six years.
Here’s what you can expect to pay from April 2023 if you earn over £150,000.
Tax from April 2023
Percentage increase in tax
Source: AJ Bell
“Two months ago the wealthiest were celebrating the abolishment of the additional rate of tax, they are now being forced to share in the pain of tax hikes, with the threshold at which that 45% rate kicks in being lowered from £150,000 to £125,140. The move will cost someone on £150,000 almost £1,250 a year extra in tax – putting an extra 2% on their total tax bill,” Laura Suter, head of personal finance at AJ Bell, said.
“The reason the government plumped for the strange figure of £125,140 rather than just a straight £125,000 is so that the tax threshold aligns with the personal allowance taper, whereby anyone earning more than £100,000 starts to lose their tax-free allowance. By £125,140 the entire personal allowance is lost,” she adds.
Capital gains tax
Capital gains tax is tax paid when you sell something that has increased in value such as shares and property. The threshold at which you start paying capital gains tax has been cut, meaning you keep less of your gains and more to the tax man..
For the 2023 to 2024 tax year investors will have to pay capital gains tax on anything over £6,000 – over half the current £12,300 threshold. This will decrease again in the following tax year, April 2024, to £3,000.
The move will mean that investors will pay an extra £25m in tax from next year and another £275m the year after.
For a basic tax rate payer with gains over the current tax-free limit this means an additional cost of £630 from next year, while an additional rate payer will be paying £1,260 more in tax.
This is an extra £930 for a basic-rate taxpayer the year after, or £1,860 for a higher-rate payer.
If you’re selling a property that is not your main residence, the change means in 2024, a higher-rate taxpayer would face an extra £2,604 a year in tax for selling a second home and a basic-rate payer would pay £1,134 more in tax.
“Anyone who hasn’t used their current capital gains tax allowance could consider cashing in gains before the tax-year end in April. Anyone with ISA allowance remaining this year can use a process called Bed-and-ISA to sell investments up to the maximum gain of £12,300 and rebuy them within their ISA. This means they will be protected from Capital Gains Tax in future years,” Suter said.
How much extra CGT will you pay?
Additional tax in 2023
Additional tax in 2024
Basic rate - 10%
Basic rate (property) - 18%
Higher rate - 20%
High rate (property) - 28%
Source: AJ Bell. (Figures assume your gains are higher than the current tax-free allowance of £12,300)
The tax free allowance for dividend allowances has also been cut, again meaning more for the tax man and less for you.
Currently it’s £2,000 - meaning you pay no tax on your dividends under that amount. From April 2023 however, it will fall to £1,000 and then from April 2024, it is £500.
Currently, if you earn £5,000 a year from dividends you’d have to pay tax of £1,181. From April 2023 that figure will rise to £1,574.
According to AJ Bell, someone with a portfolio of £20,000 that yields 5% a year will hit the lower tax-free allowance of £1,000 from April next year, while someone with a portfolio of £10,000 that yields 5% a year will hit the tax-free allowance of £500 from 2024.
To shield your income from the tax man, moving it to an ISA or pensions may make sense; if you do, move your investment that pay the highest dividends first to maximise what you keep.
Dividend tax changes – additional tax
Additional tax between 2022/23 and 2023/24
Additional tax between 2022/23 and 2024/25
Source: AJ Bell. Calculations assume annual dividends of £2,000 or more.