How the chancellor’s autumn statement could affect your finances in 2023
You’ll have likely seen plenty of headlines recently describing the announcements in chancellor Jeremy Hunt’s autumn statement.
While you may have read all about the changes, have you thought about how these could influence you and your finances in 2023?
Continue reading to discover exactly what changes were made in the autumn statement, and how this could have an impact on your finances over the coming year.
The Inheritance Tax threshold freeze has been extended
First off, one of the major changes made in the autumn statement was regarding Inheritance Tax (IHT) – more specifically, the “nil-rate band”.
This is the threshold above which estates typically pay IHT, and anything that is passed on below this amount isn’t normally subject to IHT.
As of the 2022/23 tax year, this threshold stands at £325,000, and any wealth above this value is typically taxed at 40%. There is also the “residence nil-rate band”, which increases the nil-rate band by £175,000 if you pass on your property to your direct descendants.
These thresholds were initially planned to be frozen until 2026, though the autumn statement saw these freezes extended until 2028.
If housing prices continue to rise – Forbes reports that, in the 12 months leading to October 2022, housing prices rose by 7.8% – and as asset prices increase, you may be more likely to breach the threshold when you pass away.
Your family may then face an increasing IHT bill in the coming years, especially if the IHT thresholds remain frozen rather than rising in line with inflation.
Some tax allowances and exemptions have changed
The chancellor also made several changes to tax allowances and exemptions.
Firstly, Jeremy Hunt reduced the Capital Gains Tax (CGT) annual exempt amount – the amount you can profit from the sale of assets before being taxed.
The annual exempt amount will drop from £12,300 to £6,000 in April 2023, then even further to £3,000 in April 2024.
This means you’ll potentially pay more CGT on the gain from selling assets, which could eat into your profits.
This won’t just affect profits from any shares you may own either. Indeed, the CGT allowance affects most non-ISA investments, such as second homes and any personal possessions worth more than £6,000 other than your car.
The autumn statement also saw the Dividend Allowance reduced. As the name suggests, this is the amount you can earn through dividends before you pay Dividend Tax. The allowance will be reduced from £2,000 to £1,000 in April 2023, then again to £500 in April 2024.
Anyone who takes dividends as part of their earnings, such as business owners or investors, could see their earnings drop as more of their dividends are likely to be taxed.
Income Tax thresholds have changed, and the Personal Allowance has been frozen
In the autumn statement, the chancellor also announced some reforms to Income Tax.
Firstly, the threshold at which you begin to pay additional-rate tax has been reduced. The rate of taxation is to remain the same at 45%, but the threshold before you’re subject to additional-rate Income Tax will fall from £150,000 to £125,140.
Also, the Income Tax Personal Allowance, which is the amount you can normally earn before you start to pay Income Tax, has been frozen at £12,570 until 2028. The higher-rate tax threshold has been frozen at £50,270 until the same year.
Reducing the additional-rate threshold could affect you if you earn more than £125,140, as you’ll now pay 45% tax on more of your earnings.
In fact, the Guardian reports that the move to cut the additional-rate threshold will draw around 250,000 people into the top tax bracket.
Additionally, most people will likely pay more Income Tax as earnings rise while the thresholds remain frozen than they would if these allowances were uprated with inflation.
The Energy Price Guarantee has been extended
Several factors, such as Russia’s war in Ukraine, have increased energy prices over the past year. As such, the government introduced the Energy Price Guarantee, which protects consumers from energy price hikes.
This aims to limit energy bills to an average of £2,500 a year, and this guarantee will stay in place until April 2023. Then, after April 2023, the guarantee will rise to £3,000 for 12 months.
The government website states that this could save the typical household in the UK around £500.
As you can guess, this guarantee is a blessing for many, especially during the colder winter months, as it could stop your energy bills from rising sharply. Though, you should know that your energy bills could climb again next spring when the guarantee changes.
Triple-locked pensions will continue
The triple lock ensures that the State Pension will increase each year in line with the higher of inflation, earnings, or 2.5%.
The autumn statement reaffirmed the government’s commitment to the triple lock, with chancellor Jeremy Hunt stating that the State Pension would indeed rise in line with inflation.
This means that those reliant on the State Pension could see a boost of around 10% from April 2023, meaning those on the new State Pension could receive an extra £900 a year.
This is good news for everyone, not just pensioners. Even if you aren’t yet at retirement age, you will benefit from the increase when you eventually do reach this age and start to draw your pension.
Recent Stamp Duty changes will be kept until 2025
Kwasi Kwarteng, the previous chancellor, increased the Stamp Duty Land Tax (SDLT) thresholds from £125,000 to £250,000, and the minimum threshold for first-time buyers from £300,000 to £450,000 in his controversial mini-Budget in September.
The recent autumn statement has confirmed that these changes to SDLT thresholds will remain in place, although they will be time-limited until 31 March 2025. After this, they will revert to the previous thresholds.
If you wish to buy a house before April 2025, the changes made by the autumn statement could have an impact on your plans. While you currently won’t be affected since the thresholds have been frozen, you may have to pay more SDLT after they revert to their previous values.
2 additional important announcements that could affect your finances
- The National Living Wage was increased in the autumn statement. Workers aged 23 and over will receive a 9.7% increase in the living wage to £10.42 an hour from April 2023. This will result in an extra £1,600 a year for workers on the living wage.
- The autumn statement also saw the “windfall tax” rate increase from 25% to 35% on operations within the UK between January 2023 and March 2028. This is an extension from the previously planned date of December 2025. Also, a 45% tax will be imposed on renewable and nuclear energy generation profits.
Get in touch
While some of the changes made in the autumn statement may not directly affect you, it’s still worth working with a financial adviser to discuss how your wealth could be affected in 2023.
To find out more, please email info@chancellorfinancial.co.uk, or call 01204 526 846 to speak to an adviser.
Please note
This article is for information only. Please do not act based on anything you might read in this article.
All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.
