Here, we bring you up to speed with the impact of the Autumn budget on investors including expert commentary from Hargreaves Lansdown and AJ Bell.
In the article, we cover: energy, windfall taxes, pensions, income tax rises and frozen allowances, dividends, CGT, and stamp duty.
Commenting from Hargreaves Lansdown: Sarah Coles, senior personal finance analyst, and Susannah Streeter, senior investment and markets analyst; and from AJ Bell: Laura Suter, head of personal finance, and Tom Selby, AJ Bell head of retirement policy.
Autumn Statement – overall picture
Against a backdrop of the worst inflation in 40 years, a deteriorating economy, and eye-watering borrowing costs: Chancellor of the Exchequer Jeremy Hunt has gone in hard with £30bn of austerity measures and £25bn of tax rises in his Autumn statement to fill a £55bn hole in the public purse. As a result, Brits face the biggest fall in living standards on record and highest burden of tax on Brits since the second world war.
What is the economic data telling us?
It’s not a particular rosy outlook for the UK. It was the job of the independent office of budget responsibility (OBR) to paint the picture, and here’s the grim reality:
- The recession has already arrived. It will go on for more than a year.
- GDP growth will drop 1.4% in 2023.
- Disposable incomes drop by 4.3%.
- This compares badly against other G7 nations: all of them are back to pre-pandemic levels and none are suffering the levels of inflation that we are.
- Public borrowing will rise from the £48.8bn predicted in March to £80.3bn in 26-27.
So, what’s Mr Chancellor doing about it?
Energy
- Energy cap will stay in place for another year from April, however it will rise: capping households at £3,000 per year, shielding them from rises that could’ve gone to £3,700.
- For those on benefits, payments from April will increase to £900 from this year’s £650. Pensioners get the same £300; those on disability benefits get the same £150.
Sarah Coles: “This still leaves a horrible mountain to climb, and the fact this comes on top of so many other price rises means life will be even tougher next spring.”
Windfall
- The energy profits levy will increase from 25% to 35%, and is expected to raise £14bn next year.
- The investment allowance will allow companies to offset this levy.
- It will end March 2028.
Susannah Streeter: “There will be concern this may lead to lower investment into renewables but given the clamour for acceleration companies could be hit by ethical investor headwinds if funding of greener, cleaner projects is scaled back at a time when large dividends are still paid out. The time limit set is important and will help with certainty for investment horizons.”
Pensions
- The triple-lock rise for state pensions will be reinstated having been abandoned in 22/23, meaning state pension and pension credit will rise 10.1%, in-line with the CPI measure of inflation for September 2022.
Tom Selby: “As a result, the full flat-rate state pension, paid to those reaching state pension age from 6 April 2016, will increase from £185.15 per week to £203.85 per week (£10,600.20 per year) from April 2023. This is something of a milestone as it will be the first time the UK state pension has breached the £10,000 a year mark.”
Income tax
Rises
- Just two months ago the wealthiest were celebrating the abolishment of the additional rate, now they are sharing in the pain as the threshold at which the 45% rate kicks has been lowered from £150,000 to £125,140.
Laura Suter: “The move will pile an extra £420m in tax on higher-paid workers next year, rising to £790m the year after. To make this threshold cut at a time when wages are rising considerably means far more people will be captured in the additional rate tax net.”
Frozen allowances
- Stealth taxes are part of the mix as income tax bands will remain frozen until 2028, up from 2026.
- This will include the the tax-free allowance threshold for income tax and national insurance will remain at £12,570 until 2028, and for inheritance tax at £325,000.
Sarah Coles: “We don’t tend to notice stealth taxes, because they only kick in as we get a pay rise. It means we lose more of our extra pay – so we’re never actually worse off in nominal terms.”
Investments
Dividends
- Millions will pay more tax as the tax free allowance on dividends will be cut next year time from £2,000 to £1,000, and then to £500 from April 2024.
- Dividend tax is paid at 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers.
Laura Suter: “The savviest move for investors is to move that money into an ISA, or into a pension if they can afford to tuck it away for longer. When doing this, anyone focused on investment income should prioritise their investments that pay the highest dividends first, to try to keep more of their income from the taxman’s clutches.”
Capital gains tax (CGT)
- Having already been frozen at £12,300 until 2026, Mr Hunt has gone a step further and will be cutting it to £6,000 from next April, and then again to £3,000 in April 2024.
- Capital gains tax is paid at 10% for basic rate taxpayers (18% for property investments), and 20% for higher and additional rate taxpayers (28% for property).
Laura Suter: “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 re-buy them within their ISA. This means they will be protected from Capital Gains Tax in future years.”
Susannah Streeter: “For buy-to-let investors who own property as part of a limited company these changes could be a triple whammy, coming on top of rises in corporation tax. They will not only have to pay more tax on dividends on profits from rent but now that CGT has been aligned with interest rates and they sell up, they could be faced with a hefty bill in just one hit. This could discourage them from selling, causing parts of the housing market to potentially seize up.”
Stamp duty
- The cuts to stamp duty introduced by Kwasi Kwarteng will expire in March 2025.
Sarah Coles: “This could be a useful short-term boost to the market. By moving from an open-ended stamp duty cut to a limited opportunity, it could hurry through more sales, and help to keep the market ticking over until March 2025.”