Autumn Statement 2022 - Personal Taxes

Personal Income Tax Bands

The current tax-free Personal Allowance of £12,570 will be frozen until 2028 – a two year extension to the freeze which was previously expected to end in 2026. The higher rate tax threshold will also be frozen until 2028 – the 40% rate tax will be payable on all non-savings and savings income between £50,270 and £125,140.

The threshold for the highest rate of tax will fall from £150,000 to £125,140. The additional tax rate of 45% will be payable on all non-savings and savings income above £125,140, so any individual already paying the 45% rate in 2022/23 will face an income tax increase of at least £1,243 for 2023/24.

Individuals with income of more than £100,000 will continue to have their Personal Allowance tapered, with those on incomes of more than £125,140, not being entitled to any Personal Allowance.

These changes will not apply to Scottish Taxpayers (not capital Taxpayers), where the rate continues to be set independently by the Scottish Parliament – its Budget is due on 15 December 2022.

Dividend income

The Chancellor announced that the tax-free allowance for dividend income will be halved from 6 April 2023 and again from 6 April 2024. Shareholders will start to pay tax on dividend income in excess of £1,000 (previously £2,000) in 2023/24, and where it exceeds £500 in 2024/25.

The tax rate that will apply to dividend income will depend on an individual’s tax band, with the current rates continuing in future years at 8.75% for basic rates taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate.

National Insurance Contributions

The main NIC thresholds that apply to employees, employers and self-employed individuals will remain frozen until April 2028. The net effect of this will be to increase the amount of NIC that low earners pay over time, but freezing the Upper Earnings Limit at £50,270 will benefit those whose income is above this level or increases beyond it before 2028: the NIC rate drops from 12% to 2% over the Upper Earnings Limit.

Capital Gains Tax

Tax-free Allowance 

The tax-free Capital Gains Annual Exemption will be reduced from £12,300 to £6,000 from 6 April 2023 and further reduced to £3,000 from 6 April 2024. However, despite speculation before the Autumn Statement, the rates of Capital Gains Tax payable on gains above the Annual Exemption amount remain unchanged at 10% to 28% (depending on the individual’s level of income and the type of asset sold). The CGT proceeds reporting limit will be fixed at £50,000.

Share Exchanges – Close Companies  

Legislation is being introduced with immediate effect which may impact how dividend income and capitals gains from a non-UK close company are taxed if these shares were received as part of a share for-share transaction. The changes will affect individuals who hold more than 5% of shares and securities in a UK close company and exchange some or all of those securities for an equivalent holding in a non-UK company.  

Broadly, a close company is under the control of five or fewer shareholders; or, any number of shareholders who are also directors of the company: the vast majority of typical family or owner-managed companies will be close companies for tax purposes. 

If an individual falls within these rules, the legislation will deem the shares in the non-UK company to be located in the UK for both Capital Gains Tax and Income Tax purposes. This will prevent UK resident but non-UK domiciled individuals from accessing the remittance basis of taxation on any: 

• Capital Gains realised on the disposal of the non-UK shares, AND 
• Dividends/Distributions received from the non-UK company. 

The measure will take effect for any share- for- share exchanges carried out on or after 17 November 2022, although the legislation will be introduced through the Spring Finance Bill 2023. 

Inheritance Tax

Inheritance tax is payable on any estate above £325,000 – the tax rate is currently 40%.  There is also the ‘residence nil-rate band’, which increases the tax-free allowance to £500,000 when the family home is passed to children/grandchildren. Both of these thresholds have been frozen until 2028.

If you have any questions, contact Fiona Hall or Geraldine Browne.

With thanks to our colleagues in BDO UK.