18 October 2022
On 23 September 2022, the former chancellor of the Exchequer, Kwasi Kwarteng, delivered an emergency “mini-Budget” following the election of prime minister Liz Truss.
In his speech, Kwarteng announced a series of measures that aim to help the UK “reach a trend rate of growth of 2.5%”.
In the weeks following this announcement, the value of sterling fell to an all-time low and the cost of government borrowing rose sharply, worrying many investors. Consequently, Kwarteng was sacked and replaced with Jeremy Hunt, who subsequently reversed many of the former chancellor’s decisions.
Some of the measures remaining from this mini-Budget will have an impact on areas of life for working people, including the amount of National Insurance (NI) employees might pay, and changes to the homebuying process.
If you are concerned or uncertain about how this series of policy announcements and U-turns could affect your wealth, you are not alone.
Read on to find out how Kwarteng’s announcements, and the events that followed, could affect your finances in the months and years to come.
The former chancellor cut Stamp Duty with immediate effect
In an effort to help homebuyers save thousands on their purchase, Kwasi Kwarteng cut Stamp Duty with immediate effect.
Previously, homebuyers paid Stamp Duty on home values above £125,000, unless they are purchasing an additional property. First-time buyers paid Stamp Duty on any amount exceeding £300,000.
As of 24 September 2022, homebuyers now only pay Stamp Duty on amounts more than £250,000, unless the property is a second home.
First-time buyers now pay no Stamp Duty up to £425,000 and will pay a 5% rate on the portion between £425,001 and £625,000. Any amount above £625,000 is taxed at the usual rate.
The below table shows the new Stamp Duty rates for all homebuyers except first-time buyers.
|Property price band||Stamp Duty charge if the home is your main residence||Stamp Duty charge on an additional property|
|£0 to £250,000||0%||3%|
|£250,001 to £925,000||5%||8%|
|£925,001 to £1.5 million||10%||13%|
|More than £1.5 million||12%||15%|
So, if you are buying a home in the near future, you will pay less Stamp Duty than you would have before 24 September 2022. To make the most of this money-saving announcement, speak with your financial planner before buying a new home.
Kwarteng reduced 2 key rates of Income Tax but both reductions have been scrapped by Hunt
In an attempt to encourage spending and investment and, in turn, economic growth, the former chancellor orchestrated Income Tax cuts for people at both ends of the earning spectrum.
Kwarteng stated: “Taxing our way to prosperity has never worked. To raise living standards for all, we need to be unapologetic about growing our economy. Cutting tax is crucial to this.”
He said that, as of 6 April 2023, two key changes would come into force:
- The basic rate of tax will be paid at 19% instead of 20%.
- The 45% additional rate of tax, currently levied on those earning more than £150,000 a year, would be abolished. So, all former additional-rate taxpayers would instead pay the higher rate of 40%.
However, following a backlash from investors, and political pressure, Kwarteng reversed his decision to scrap the additional rate of tax just days later.
What’s more, in his snap statement on 17 October, new chancellor Jeremy Hunt cancelled the planned basic-rate Income Tax cut.
So, unless further changes are implemented before April 2023, you will pay your current rate of tax in the 2023/24 tax year.
The 1.25% National Insurance increase has been reversed
In his 2022 spring statement, former chancellor Rishi Sunak announced a 1.25 percentage point rise to National Insurance contributions (NICs). In April 2023, a new Health and Social Care Levy was set to replace this rise.
Now, both have been scrapped – so, as of 6 November 2022, you will pay fewer NICs.
According to the BBC, the Treasury claim this measure will save 28 million people an average of £330 a year.
Plus, the reduction of NICs will help around 920,000 businesses save up to £10,000 a year, the government claims.
Kwarteng scrapped the Dividend Tax rise, which was then reinstated by Hunt
In a further move to reduce the average person’s tax liability, Kwarteng reversed the 1.25 percentage point Dividend Tax rise that came into effect in April 2022.
However, in another U-turn announced by Hunt on 17 October, the current rates of Dividend Tax will stay in place.
So, from April 2023, the ordinary, upper, and additional rates of Dividend Tax will be 8.75%, 33.75%, and 39.35% (their 2022/23 levels) respectively.
Kwarteng scrapped the planned Corporation Tax rise – but new chancellor Jeremy Hunt has revived the measure
Next in the list of reversals announced in the mini-Budget, the proposed move to raise Corporation Tax from 19% to 25% in April 2023 was cancelled.
In his speech, Kwarteng claimed: “That’s £19 billion for businesses to reinvest, create jobs, raise wages, or pay the dividends that support our pensions.”
Nevertheless, upon his appointment, new chancellor Jeremy Hunt reintroduced the increase. So, if you are a business owner, your Corporation Tax will rise in April 2023 as planned.
3 additional changes that might affect you
In addition to the shifts in policy explored above, there have been further changes that could affect you. These include:
- A removal of the cap on bankers’ bonuses
- The creation of “investment zones” that will allow businesses in certain areas to benefit from accelerated tax reliefs on certain investments, such as property
- The shutting down of the Office for Tax Simplification.
If you have any questions about how these measures could affect you, contact your financial planner.
Get in touch
If you are concerned about the impact of both chancellors’ announcements on your savings, earnings, investments, or buying your next home, get in touch today. Email firstname.lastname@example.org or call 0161 8080200.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
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