Kwasi Kwarteng introduces tax cuts aimed at addressing cost of living and delivering future growth
In his ‘plan for growth’ he carried through on Liz Truss’s leadership pledge to reverse the National Insurance and dividend tax increases that were implemented to help fund social care reforms. And in a surprise move, he will remove the additional rate of income tax from April 2023 and bring forward the 1% cut to basic rate tax.
Read our summary of the key points from today’s fiscal event.
- Earnings and savings – The additional rate of tax of 45% (39.35% for dividends) on income in excess of £150,000 is to be abolished from 6 April 2023. This means that all taxable income over £37,700 will be taxed at 40% (32.5% for dividends).
The cut to the basic rate of income tax will take place a year earlier than planned, also from April 2023. The rate for both non-savings and savings income will fall from 20% to 19% – a saving of up to £377 a year.
The Scottish Government intend to hold their own Mini Budget in the coming weeks and this will determine how these changes will apply to Scottish taxpayers.
- Dividends – The rate of tax on dividend income is to be cut by 1.25% from 6 April 2023. The rates will return to their pre-April 2022 levels of 7.5% (basic rate) and 32.5% (higher rate) on amounts in excess of the £2,000 dividend allowance. Following the removal of the additional rate, 32.5% will be the highest rate paid on dividends from next year.
- Allowances and thresholds – There were no fresh announcements relating to the personal allowance and basic rate band. These remain frozen at £12,570 and £37,700 respectively until 2025/26. This means that the higher rate tax threshold will remain at £50,270 for those entitled to a full personal allowance.
- Trusts – There was no announcement on how the removal of the additional rate of tax will impact trusts. Currently trustees pay tax on trust income and dividends at a rate equivalent to the additional rate (45% on income and 39.35% on dividends). Further clarification is awaited and may be included in the Autumn Statement or when draft legislation is published in the Finance Bill.
The trust standard rate band for the first £1,000 of income will fall from 20% to 19% from 6 April 2023.
- Gift Aid – although the basic rate falls to 19% from next year, there will be a four year transitional period for Gift Aid, maintaining income tax basic rate relief at 20% until April 2027.