To discuss what this means for you and your business get in touch or speak to your usual Crowe contact.
Partner reaction videos and podcast
The decrease in both the Capital Gains Tax (CGT) annual allowance and the dividend allowance announced by the Chancellor is likely to see an increase in tax for the average investor where their investments are held outside tax efficient wrappers such as ISAs and pensions.
The dividend allowance will be halved to £1,000 next year and halved again in 2024/25. This means that the receipt of only a modest level of dividends will result in some investors falling into the self-assessment regime when they have not been required to complete a tax return before. For those pensioners and employees taxed through the PAYE system, this will result in complicated changes to tax codes to collect the anticipated tax each month.
The CGT annual allowance will be reduced by over half to £6,000 from next year and reduced again to £3,000 in 2024/25. This will reduce the amount of gains that investors can make before they become liable to CGT. Investors who want to avoid this may be unable to structure their portfolios in the most appropriate way as they become unable to trade unwanted shares due to the inherent gains.
Investors should therefore make the most of the current CGT allowance and think about holding shares in ISAs or pensions rather than in general investment accounts. There may also be an opportunity to take losses on investments now while markets are lower to offset gains in the future.
Back to top: Explore all Autumn Statement measures announced
The Chancellor announced that the Inheritance Tax (IHT) nil rate band and the residence nil rate band are to remain frozen until April 2028. This extends the previously-announced freeze by a further two years.
The nil rate band has been set at £325,000 since April 2009, the impact being that more estates now fall chargeable to IHT due to the general increase in values of assets over time. The most recent IHT statistics show that receipts were £6.1 billion for the year to 31 March 2022, up by 14% on the year before (source: Inheritance Tax statistics: commentary - GOV.UK).
Landlords have been particularly challenged as there are few reliefs applicable to property that are available to reduce the IHT liability. When tax planning, many consider gifting to their children or other family members, perhaps by way of a Trust or company. So long as they survive the gift by seven years, the value should be outside the estate for IHT purposes.
Some experts are predicting a dip in property prices in 2023 so some landlords may use this reduction as an opportunity to do some planning. Property incorporations are still worth considering in detail, given the Stamp Duty Land Tax benefits (SDLT) of both multiple dwellings relief and the nil rate extension on 23 September 2022, which is likely to remain in place until March 2025. See more on SDLT below.
Back to top: Explore all Autumn Statement measures announced
One of the few tax announcements from the mini-Budget that had not already been reversed has been made into a temporary relief, and will end on 31 March 2025.
On 23 September 2022, the government increased the nil-rate threshold for residential Stamp Duty Land Tax (SDLT) from £125,000 to £250,000, and increased the nil-rate threshold for first time buyers from £300,000 to £425,000. The maximum purchase price for which first time buyers’ relief could be claimed was also increased to £625,000.
These changes will affect any purchases of residential property in England and Northern Ireland after 1 April 2025.The maximum benefit for purchases prior to 1 April 2025, for individual purchasers who have already owned a property or corporates buying residential, is £2,500 per property. While the overall maximum saving for first time buyers who buy a residential property of £625,000 prior to 1 April 2025, is £11,250.
Changes in the residential rates of SDLT creates pressure points within the housing market with a rush to complete before the changes are implemented. This leads to stressed buyers, sellers and conveyancing lawyers and does nothing to increase the housing supply. The Chancellor has made promises to prioritise streamlining the planning system and accelerating national infrastructure projects, clearly meaningful actions on these measures would have a more significant impact on the housing market.
The removal of the revised thresholds also means that first time buyers looking to buy in London, where the average dwelling price as at July 2022 was £543,000, will qualify if purchased before 1 April 2025 but not if purchased afterwards. This suggests that this will create additional pressure on the housing market in the South East.
Chancellor Jeremy Hunt did not have much to say on rates of tax, though he did speak about reducing charging bands (for example the additional rate of 45% will apply to income over £125,140) from April next year and certain allowances, such as the dividend allowance which will reduce to a mere £500 over a two-year period.
The previously augmented dividend tax, which is now 8.75% (basic), 33.75% (higher) and 39.35% (additional) will continue for families who operate through companies. This is on top of the enacted April 2023 increase in Corporation Tax announced in 2021, which will see an increase from 19% to 25% for companies with profits over £250,000. From this date, only trading companies with profits under £50,000 will still be taxed at 19% with a tapered 26.5% rate for profits between £50,000 and £250,000. These limits will be divided between associated companies.
Historically, a ‘low salary, high dividend’ strategy produced the best net cash position and this is likely to continue to be the strategy for many, even though the overall tax charge will rise. The ability to control timing of income extraction and spread dividend income by way of share ownership will continue to prove attractive.
For owners who have property used by their business, or who have lent money to their company, a further method of cash extraction could be for the company to pay a commercial level of rent or interest. As both rent and interest are deductible for Corporation Tax purposes and are not within the charge to National Insurance, this can certainly prove to be a tax efficient option from a combined income and Corporation Tax perspective. Tax advice needs to be taken before any rent is charged as there are wider implications.