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Mini-Budget: Summary of key announcements
Just 17 days after being appointed Chancellor of the Exchequer, Kwasi Kwarteng set out his Growth Plan to the House of Commons on September 23.
It was labelled a mini-Budget, but the Chancellor’s first intervention on fiscal policy has been the source of major discussion.
Here, we provide an overview of the key points.
UPDATE: On October 17, a number of mini-Budget policy U-turns were announced by Jeremy Hunt, who had earlier replaced Kwasi Kwarteng as Chancellor. These are detailed in a separate article.
UPDATE: On October 3, the Government announced it would not in fact be proceeding with the abolition of the 45p tax rate as previously indicated in the Growth Plan.
The Chancellor announced that the basic rate of Income Tax will be reduced from 20% to 19% from April 2023. At the same time, the 45% additional rate of income tax, payable by anyone earning above £150,000, will be scrapped, leaving a single higher rate of income tax of 40% for those earning above £50,271. When this change takes effect, it will mean anyone previously taxed at the additional rate would then qualify for the £500 personal savings allowance, but it also means they will no longer be able to claim relief on their pension contributions at the additional rate.
From April 2022, National Insurance contributions were increased by 1.25%, but this policy has been reversed by the new Chancellor. The increase will be scrapped from November 2022 and previous thresholds will apply. Under the original plans, these additional contributions would have been replaced in April 2023 by a separate tax at the same 1.25% rate – the fiercely debated Health and Social Care Levy – which was introduced by former Prime Minister Boris Johnson to fund extra spending on the NHS and social care system. This has also now been cancelled, with Chancellor Kwarteng promising that healthcare funding will be maintained at the same level as if the Levy – which was expected to raise around £13 billion per year – was still in place.
Aligned to the 1.25% decrease in National Insurance contributions is a similar decrease in the rates payable on taxable dividend income. From April 2023, rates will fall from 8.75% to 7.5% for the basic rate band and from 33.75% to 32.5% for the higher rate band. Dividends that form part of the additional rate band are currently liable to tax at 39.35%, but this rate will be withdrawn since the additional 45% rate of Income Tax is being scrapped.
Stamp Duty Land Tax (SDLT)
The nil-rate band has been permanently increased from £125,000 to £250,000 with immediate effect. In addition, the previous nil-rate purchase-price limit of £300,000 for first-time buyers has been increased by the same amount, taking the threshold to £425,000. The maximum property value on which first-time buyer’s relief can be claimed rises from £500,000 to £625,000.
Planned changes to the rate of Corporation Tax, scheduled to be introduced in April 2023, have been cancelled in full. All firms will be subject to a rate of 19%, irrespective of profits made.
Other key points
- Confirmation of previously announced energy cost reduction measures
- Planned increases in alcohol duty, linked to RPI, have been cancelled
- Scrapping of the bonus cap for workers in the financial services sector
- Reversal of the rule changes for off-payroll workers (IR35)
Since taking office, Prime Minister Liz Truss has repeatedly stated her regime’s intention to cut taxes as a means of stimulating economic growth. With this mini-budget – officially titled The Growth Plan 2022 – Chancellor Kwasi Kwarteng has delivered on this strategy at the first opportunity.
The changes are more significant than many commentators had expected, prompting a mixed reaction. Concern over the level of borrowing required to fund the tax cuts prompted an initial rebuke from financial markets while industry leaders described it as “a good day for British business”.
At a time when the cost of living remains front of mind for many individuals, only time will tell whether the plans will stimulate economic momentum as intended and whether they will have any wider implications for personal wealth and financial planning.
The information contained within this communication does not constitute financial advice and is provided for general information purposes only. No warranty, whether express or implied is given in relation to such information. Vintage Wealth Management or any of its associated representatives shall not be liable for any technical, editorial, typographical or other errors or omissions within the content of this communication.
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