Phil Stevens reflects on the Autumn Statement from Chancellor Jeremy Hunt in Parliament today (17/11/22)
This was an Autumn Statement full of changes – yet I can’t help but feel there were not as many changes as anticipated.
There was a lot of conjecture in the speech, but as always with these statements it is difficult to identify the true impact on business until the full details and intricacies have been analysed.
One area we were expecting there to be significantly more movement on is Capital Gains Tax (CGT). We had thought it possible that CGT rates would be increased and perhaps be aligned with Income Tax.
That wasn’t the case and instead the Chancellor announced that the CGT allowance will be reduced from £12,300 to £6,000 from April 2023, then halved again to £3,000 from April 2024!
This will have an impact on individuals that look to gift assets as part of their annual exemption and certainly restrict what they will be able to do.
For property owners, I thought he may have considered increasing the CGT rates on disposals of real estate, as these had been an easy target for tax increases in recent years.
The statement also passed by without any discussion of tinkering with business asset disposal relief (formerly known as entrepreneurs’ relief), which can only be good news for any owners currently considering an exit strategy from their business.
We also heard that the tax-free dividend allowance will be reduced from £2,000 to £1,000 in 2023-24, before dropping to just £500 in 2024-25. This continues a major change in taxes on dividends over the last half a decade, and we are now set to see that allowance drop from £5,000 (up to 2017/18) all the way down to £500 in a relatively short period of time.
The erosion in this benefit will certainly leave sole traders and partnerships to consider whether incorporation is the best route to take in the future, with the differences in tax liabilities between receiving dividends and earned income becoming increasingly minimal.
The freezing of thresholds on personal tax until April 2028 will have a negative impact on individuals in the long run and push more people into higher tax rates sooner; whilst this doesn’t directly impact on business, in time it may as consumer spending could reduce.
It was disappointing to see the inheritance tax threshold of £325,000 frozen yet again to April 2028. This rate was set in the 2009/10 tax year, which means it will have not increased in 18 years under today’s announcement. This decision will have an impact as time goes on and we will see more people liable to paying this tax as estate values continue to rise, particularly if heavily comprised of real estate.
Finally, at Burgis & Bullock we have been vocal in recent years about people abusing the research and development tax credit system here in the UK. Plans have been announced to overhaul the system for small businesses, with a deduction in the rate for the SME scheme to 86 per cent (from 130 per cent) and the credit rate to 10 per cent (from 14.5 per cent). However, the rate of the Research and Development Expenditure Credit (RDEC) is set to rise to 20 per cent (from 13 per cent).
While this will have an impact on businesses looking to claim, it is an area that has long needed reform and these are the first steps in that reform. The system may now be less attractive to some businesses looking to apply, but this should leave the gate open for businesses with more legitimate claims.
This was a statement without some of the major headlines I was hoping for, and one in which individual taxpayers appear to have been hit more than businesses.
Our team of tax experts will be sitting down over the coming days to assess the true implications of the statement and would urge businesses or individuals to get in touch with us if they have any concerns and queries about the changes announced in today’s statement.