This page was last updated on 17 October 2022.
The Chancellor (Jeremy Hunt, appointed last Friday) has today decided to
reverse almost all the tax measures announced less than four weeks ago by then Chancellor Kwasi Kwarteng. By any measure this is a remarkable political moment. Rarely does a government openly admit that it is doing such a sharp U-turn. From a tax perspective, the changes are easy to summarise: only the cuts to Stamp Duty Land Tax and National Insurance remain. Almost all other changes, with some minor unknowns, have gone.
At the time of Kwarteng's mini-budget we wrote:
In a post-pandemic environment of economic uncertainty and the increased burden of a cost of living crisis, the Chancellor's measures provide financial support to many sectors, whilst not increasing the tax burden. His opponents, and even his supporters, may well ask how it's all to be paid for. Today we have the answer. These changes are
designed to provide confidence and stability to the markets which are
rightly demanding commitment to sustainable public finances;. That may be long hand for
This may not be the end of it. The Chancellor warned of further
…difficult decisions on tax and spending. The country may be spooked by yet more tax increases in the Fiscal Statement on 31st October.
We have reproduced our original Mini-Budget briefing below. We have marked those measures which will no longer proceed with U-turn and those which will continue with Going ahead. Such was the perceived need to act urgently to reassure markets that the fate of some of the less expensive measures remains unknown. These measures are marked as Not certain.
Income tax: unexpected
In what came as a surprise to many, the Chancellor, Kwasi Kwarteng, has slashed income tax rates for the UK's highest earners with effect from April 2023:
The 45% "additional rate" of income tax is to be abolished
The 39.35% dividend "additional rate" is to be abolished
The 20% "basic rate" of income tax is to be reduced to 19%
The effect of the abolition of the additional rate is relatively straightforward: non-dividend income will now be taxed at a top rate of 40% for income in excess of £50,271. There are, however, some more nuanced implications of this. For a start, the government has not altered the personal allowance taper. This means that those earning above £100,000 will continue to lose £1 of their personal allowance for every £2 that their income exceeds £100,000. As a result, the effective marginal rate of tax for income between £100,000 and £125,000 will still effectively be 60% despite what the headline rate reduction may suggest. By contrast, the government has confirmed that the personal savings allowance will now be available to those earning over £150,000. Previously those subject to additional rate tax did not benefit from this £500 tax-free allowance.
It is not just tax on earnings which is being cut. Dividends will also be subject to less tax for top earners. The highest rate of income tax for dividends from April 2023 will now be 32.5%. Under previous Chancellor, Rishi Sunak, the highest rate of tax on dividends had been planned to increase to 39.35%. Seen in this light, top earners will now be taxed almost 7% less from April 2023 compared to what they might otherwise have expected. At this stage, however, it is unclear how this will interact with the remittance basis of taxation. Up to now remittance basis taxpayers have not been able to benefit from the lower dividend rate of tax. Instead, foreign dividends remitted to the UK have been subject to income tax at rates of up to 45%. Whether they will now be taxed at up to 40% or up to 32.5% remains to be seen.
Although the abolition of the 45% income tax rate may be welcome news for high earners, charities will be concerned if it proves to be less of an incentive for high earners to make Gift Aid donations on the basis that they will no longer receive as much tax relief. Hopefully this fear will be unfounded, particularly as we move into a cost-of-living crisis and the demands on the voluntary sector are likely to become ever greater.
Author: Christopher Eames
Immediate stamp duty land tax (SDLT) reductions for all residential property buyers
The threshold at which SDLT becomes payable on residential properties has been increased from £125,000 to £250,000 with immediate effect. This eliminates the previous 2% band, providing a saving of £2,500 for all purchasers including buyers above £250,000, second home buyers and buy to let investors.
First-time buyer relief has also been extended. Eligible purchasers will pay no SDLT on the first £425,000 of a property's value (increased from £300,000), and may claim the relief on purchases worth up to £625,000 (increased from £500,000).
The government's stated aims are to boost the property market, which it is hoped will fuel wider economic growth, as well as to help people onto the property ladder. It remains to be seen whether the latter aim especially will be undermined by consequential increases in property prices, particularly in already heated markets such as London.
The previous and new SDLT rates on residential property (ignoring first-time buyer relief and the second home and non-UK resident surcharges) are as follows:
|Rate until 22 September 2022
|Rate from 23 September 2022
|Up to £125,000
|£125,000 to £250,000
|£250,000 to £925,000
|£925,000 to £1.5m
Author: Hannah Dart
Taxation of companies
As widely trailed in the media, the Chancellor has confirmed that Corporation Tax will remain at 19% and not increase to 25%. That will obviously mean a welcome saving for tax-paying businesses, but also a consequent reduction in the value of tax reliefs. As an example, losses carried forward will now only save tax at 19%, not 25%.
With no increase in Corporation Tax, the scheduled increase in the rate of Diverted Profit Tax, charged at 6% higher than the applicable rate of corporation tax, will consequently not go ahead.
To encourage the investment by the private sector that the government seeks, the amount of expenditure eligible for relief under the Annual Investment Allowance (rather than through the slower-acting capital allowances regime) will remain £1m.
Businesses grappling with the off-payroll legislation (in effect putting the risk on them of non-compliance with the IR35 regime by contractors they use) will be pleased that from 6 April 2023 the risk of non-compliance with PAYE and NIC rules will revert to the contractors' personal service companies. However, with forecasts suggesting that HMRC will lose £6 billion of tax revenues by this measure, it is quite possible that the rules will be tweaked again.
Author: Gary Richards
CSOPs: The goose that laid the golden eggs
The grant of tax favoured options to employees and directors under the Employee Share Ownership Plan (as it was then known) in the 1980s was credited with transforming entrepreneurial behaviour in Britain. Since then, the Company Share Ownership Plan or CSOP (as it is now known) has become less generous – currently limited to options over shares not exceeding (at grant) £30,000 in value, while other schemes such as the Enterprise Management Scheme (EMI) have become more popular for eligible growing companies.
The Chancellor has announced an increase to £60,000 in the value of CSOP options eligible for tax relief (in effect no income tax on exercise, just CGT on sale if the rules are adhered to). The announcement also suggests that in order to make CSOPs more attractive to growth companies, there should be relaxations to the requirement for the majority of shares in the same class as those subject to the options to be held by employees who as a result control the company, or by non-employees. However, the details are not yet clear.
The planned changes to CSOPs are likely to make them far more popular, particularly for those fast growth companies that won't otherwise qualify under the EMI scheme.
Author: Stephen Diosi
Enterprise Zones - the sequel?
In the early 1980s Enterprise Zones were intended to supercharge development in certain areas, most notably London's Docklands. There are many similarities with the time-limited tax benefits in the Investment Zones announced by the Chancellor today.
These include 100% First Year Allowances on investment in plant and machinery, straight line 20% Enhanced Structures and Buildings Allowances for 5 years, no SDLT on land and buildings bought for use or development for commercial purposes, no SDLT land or buildings bought for new residential development, and 100% business rates relief. Employer's National Insurance Contributions on the first £50,270 of pay per annum to each new employee working within the Zone will not be due.
The precise limits of the Zones themselves, potentially 38 and counting, with local authorities such as Kent County Council and the Greater London Authority already in discussions, are still under review. More details on the promised planning and other regulatory relaxations have yet to be released.
Author: Gary Richards
It wasn't long ago that we were reporting on incoming changes to national insurance contributions (NICs) (https://www.mishcon.com/news/spring-statement-spinning-into-the-new-tax-year). As a reminder, the plan was to increase the NIC rate by 1.25%, which would later become the Health and Social Care Levy, whilst also increasing the annual primary threshold and lower earnings limit.
The Chancellor has today confirmed that the increase in Employer National Insurance Contributions and Dividends Tax will be cancelled. The Chancellor also announced that the interim increase in the National Insurance rate brought in for this tax year will be cancelled. These changes will take effect from 6 November 2022.
The Chancellor was quick to emphasise that the effect of these measures will be a tax cut for 28 million people and nearly 1 million businesses. Basic rate taxpayers will on average save just £175 in 2023/24 whilst additional rate taxpayers will on average save almost £4,000.
Author: Ellie Houston
Focus on growth: expansion of SEIS, VCTs and EIS schemes
Given the context of today's statement, it is perhaps unsurprising that the government has reiterated that it is "supportive of the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) and sees the value of extending them in the future". Detail on those extensions have not yet been published. There is, however, a little more on the Seed Enterprise Investment Scheme (SEIS), the scheme designed to support those start-ups at the very earliest stages of their lifecycle. From April 2023 they will now be able to raise up to £250,000 in SEIS investment. Previously the limit had been £150,000 so this is a significant increase. More companies will also be eligible for the scheme. Companies with gross assets of up to £350,000 will now be eligible and they will remain so for the first 3 years that they are trading (previously £200,000 and 2 years respectively). It is not just the companies which will benefit. Individual investors will now be able to invest up to £200,000 using the scheme, a 100% increase compared to the current limit of £100,000. However, one key criterion will not change: the maximum permitted number of employees will remain at 25.
Author: Christopher Eames