Today Kwasi Kwarteng presented his first budget and with a clear strategy, reduce taxes to stimulate growth!
Some headline changes were already anticipated but the Chancellor pulled a rabbit from the hat when he abolished the 45% tax rate.
The headlines are as follows:
From 6 April 2023 the basic rate of income tax will fall from 20% to 19%, whilst the “additional higher rate” 45% tax bracket will be abolished, meaning we will just have one higher rate of tax at 40%.
The dividend additional rate will also be removed to align with the dividend upper rate, which is being reduced to 32.5% from 6 April 2023.
In addition, as promised during our new prime minister campaign, the 1.25% increase in national insurance is being reversed from November 2022.
The reduction in the higher rate tax rates may create tax planning opportunities for additional rate taxpayers pre/post 6 April 2023.
Business and Corporation Tax
Corporation tax hikes due to come into force from April 2023 have been abolished and companies will continue to pay 19% corporation tax on profits, rather than 25%.
The off-payroll working rules, or IR35 as they are more commonly known, are being repealed from 6 April 2023. This should make it easier for individuals to provide services through their own personal service companies and reduce administrative red-tape for contractors and their clients.
The current, temporary, Annual Investment Allowance of £1M is to be made permanent and should encourage business to continue to spend and invest in their infrastructure in the knowledge they will receive immediate tax relief for doing so. There’s a “super deduction” too, for investment in qualifying plant and machinery and that’s being retained.
The Seed Enterprise Investment Scheme (SEIS) is being expanded and the changes should make SEIS investment more attractive.
Under the new rules as of April 2023, companies can:
- Be trading for up to 3 years (previously 2 years)
- Have gross assets valued up to £350,000 (previously £200,000)
The total amount companies can raise is increased to £250,000, and the annual investor limit will also increase from £100,000 to £200,000 to help support these changes.
No changes have been announced for the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT), other than confirmation they will continue to be supported by the government.
Stamp Duty Land Tax (SDLT)
SDLT is being reduced and it’s hope this will stimulate housing activity, particularly at the first-time buyer end of the market.
For first-time buyers, SDLT is not payable on the first £425,000 of the property’s purchase price (the property value must be £625,000 or less) and for all other buyers no SDLT is payable on the first £250,000 of the property’s purchase price.
Further reliefs have been announced for commercial property and new residential developments.
The reduction of the personal income tax rate will clearly be welcomed by additional rate taxpayers! It remains to be seen what wider benefit this will have for the economy but it is hoped that a more competitive tax system will attract high earning talent to come and live and work and pay taxes here in the UK.
It was feared that impending corporation tax hikes would costs jobs and reduce investment, so the u-turn on is very welcome, this will free up more reserves for businesses investment in infrastructure and their staff. A low corporate tax rate also ensures the UK remains an attractive place for international businesses to be based. Finally, for private clients that have established Family Investment Companies (FICs) a low corporation tax rate means FICs remain a very attractive tax structure.
For non-domiciled clients looking to invest in the UK the enhanced SEIS rules reduce the risk and make investment into UK start-ups more attractive, particularly when combined with a Business Investment Relief claim which allows otherwise unremittable capital to be invested in the UK.
It remains to be seen what impact these changes will have and detail on the fiscal impact was rather light touch. There’s no doubt we will all be paying less taxes over the next couple of years, which is welcomed by most, but the Government will be borrowing more and someone’s going to have to pay for it eventually…
If you would like to discuss how the Budget affects your circumstances, please do not hesitate to contact us.