Mini budget 2022: What the ‘Mini-Budget’ means for individuals
InsightsThe Chancellors Budget and Forecast StatementsMini Budget 2022: our insight and analysis
What the ‘Mini-Budget’ means for individuals
With over 30 measures announced by Chancellor Kwasi Kwarteng, the ‘Mini-Budget’ definitely packed a punch, but what do these mean for individuals? This was published on 23 September 2022.
*For the latest information please see our mini budget summary
Income Tax changes
The basic rate of income tax of 20% will be reduced to 19% from April 2023, a year earlier than previously intended. This cut will apply to non-savings income for taxpayers in England, Wales and Northern Ireland and savings income for taxpayers throughout the UK. The Government estimates that, on average, basic rate taxpayers will be £130 better off and higher rate taxpayers will be £360 better off as a result of this cut to the basic rate of income tax.
Coupled with the repeal from April 2023 of the IR35 Off Payroll Working Rules in the Public and Private Sectors that were introduced in 2017 and 2021 respectively, there may be an unintentional increase in individuals setting up personal service companies, given the announcements on dividend additional rates and Corporation Tax.
Scottish taxpayers earning more than around £27,000 already pay more income tax than their counterparts in the rest of the UK and, absent any reaction from the Scottish Government, the changes announced by the UK Chancellor today will increase this divergence.
It will be interesting to see whether the Scottish Government implement any changes to the Scottish rates of income tax in response.
National Insurance (NIC) reversal
From November (2022), employees’ Class 1 NIC will drop back to the 21/22 tax year rates. This means individuals will pay NIC at 12% and 2% rather than 13.25% and 3.25%.
You can read more on NIC changes here [link to employee article]
So, how do the income tax and NIC announcements impact you?
The below table show what an employee’s pay would have been for the 2023/24 tax year and how this has now changed following today’s announcement.
Pay Example | Net Pay if no changes had been announced on 23/09/22 | Net Pay Following the changes announced on 23/09/22 | Increase in Pay | % increase compared to gross pay |
£35,000 | £26,104 | £26,608 | £504 | 1.4% |
£70,000 | £46,754 | £47,824 | £1,094 | 1.5% |
£175,000 | £100,039 | £103,696 | £3,657 | 2% |
*We have used available thresholds and limits as published by 23 September 2022. We have also assumed minimum pension contributions are being made using the qualifying earnings definition.
Stamp Duty Land Tax (SDLT)
The Chancellor announced cuts to Stamp Duty Land Tax (SDLT) that applies to purchases of residential property.
The level above which SDLT begins to be paid has increased from £125,000 to £250,000 effective from today (23 September). This removed the 2% band that was previously applied.
For properties where the consideration is above £250,000, this will result in a saving £2,500 which will be welcomed, but perhaps unlikely to have a significant impact at the higher end of the property market.
The standard SDLT rates are now:
Property Value | Standard Residential Rates up to 22 Sept 2022 | Standard Residential Rates from 23 Sept 2022 |
£0 - £125,000 | 0% | 0% |
£125,000 - £250,000 | 2% | 0% |
£250,000 - £925,000 | 5% | 5% |
£925,000 - £1,500,000 | 10% | 10% |
£1,500,000 + | 12% | 12% |
The Government also announced significant changes to SDLT for first-time buyers, increasing the level at which they will start to pay SDLT from £300,000 to £425,000. In addition, first-time buyers will now be able to access the relief on purchases of property with a value of up to £625,000, up from the previous £500,000 limit, with amounts in excess of the nil rate band taxable at 5%.
There have been several temporary changes to SDLT rates and bands in recent years so it is good to see this introduced as a permanent measure. This should avoid the distortions to the property market that can come with time-sensitive changes.
SDLT does not apply in Scotland or Wales so it will be interesting to see if the Scottish and Welsh Governments make any corresponding changes to their respective property taxes.
How can you manage these changes
For many, the changes announced today could have a significant impact on their personal finances and their longer-term financial planning strategies.
Given that some measures are being imposed immediately and others introduced in April 2023, it is important to assess your current planning for the remainder of this tax year and establish an appropriate strategy from then onwards.
If you would like to speak with one of our Private Client advisers regarding your tax and financial planning position and the implications of these changes, please do not hesitate to get in touch.
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