Just two months on from the calamitous ‘mini Budget’, chancellor Jeremy Hunt has unveiled a raft of tax rises and spending cuts aimed at repairing the UK’s public finances and international reputation – but it comes at a cost to the average person’s personal finances.
With the cost of living rising at its fastest rate in 41 years, the chancellor warned that the UK has now officially entered a recession and that the the worst is yet to come. He promised to protect the country’s most vulnerable by placing the biggest tax rises on the most well off.
Here are some of the key ways that your own money is likely to be affected:
Expect to pay more in tax
Tax-free personal allowance frozen: Rather than rise in line with inflation, the tax-free personal allowance will remain at £12,570. The threshold at which workers pay the higher-rate of tax of 40 per cent will also be frozen at £50,270 in England, Wales and Northern Ireland (Scotland has different tax thresholds). Freezing the thresholds means that tax bands stay the same, even as people’s pay goes up. As wages rise, people pay tax on a larger proportion of their earnings, and more people move into higher tax brackets. This is sometimes called fiscal drag.
Highest tax rate threshold lowered: The threshold for the highest level of tax of 45 per cent will be lowered from £150,000 to £125,140 from April. This is expected to pull an extra 250,000 people into the top bracket.
National Insurance threshold frozen: The threshold at which you start to pay National Insurance (£12,571) will also remain frozen until April 2028.
Inheritance tax threshold frozen: The threshold at which you start to pay inheritance tax – currently £325,000, at which point you pay 40 per cent – will be extended to 2027-28.
Electric vehicles tax: From April 2025, electric vehicles will no longer be exempt from vehicle excise duty.
You might take a hit on your investments
Capital gains tax allowances pared: The annual allowance before capital gains tax is paid will be reduced from £12,300 to £6,000 in April and then to £3,000 a year later. This tax is paid when you sell an asset, such as company shares or a second home.
Tax-free dividend allowance halved: The tax-free limit on dividend payments will be halved from £2,000 to £1,000 from next April, and halved to just £500 from April 2024. This will hit investors who hold income-paying shares outside tax wrappers like Isas and pensions, as well as costing limited company directors who are remunerated through dividends.
If you’re a pensioner, there is some relief
Triple-lock protected: Under the “triple lock”, the state pension must increase each year in line with the highest of inflation (as measured by the Consumer Prices Index in September), the average increase in wages across the UK, or 2.5 per cent. The chancellor confirmed that the state pension will go up by 10.1 per cent to match inflation, from April. The full annual amount of the new state pension will rise above £10,000 for the first time next year, and will be worth over £200 per week.
Pension credit increased with inflation: Pension credit, a benefit received by the poorest pensioners, will also be increased by 10.1 per cent. However, the chancellor said a review into the current level of the state pension age would be published in “early 2023”.
Cost of living help will be more targeted
Help with energy bills cut: From next April, the current package of help measures with energy bills will be more targeted at the lowest-earning households. At present, the energy price guarantee caps energy bills for the average home at £2,500 per year. From next April, this amount will rise to £3,000, and remain at this level for 12 months.
Support package stopped: The £400 support package received by all UK households will not be repeated. However, households on means-tested benefits will receive a cost of living payment worth £900. Pensioner households will receive £300 and those with disabilities £150. Those using heating oil will receive a payment of £200, rather than £100.
Windfall taxes: The measures will be partially funded by higher windfall taxes on energy companies.
Benefits and minimum wage to rise: Means-tested benefits and the national living wage will rise by 10.1 per cent next April. A family on universal credit is set to benefit next year by around £600.
Help for home buyers will continue.. for now
No stamp duty change: In September, the price at which stamp duty is paid was doubled from £125,000 to £250,000 (£425,000 for first time buyers) and discounted stamp duty for first-time buyers applied to properties up to £625,000, rather than £500,000. However, the chancellor has said these measures will now only remain in place until March 31 2025.