In the Chancellor of the Exchequer’s Autumn Statement, several allowances and exemptions were frozen or reduced, bringing new taxpayers into the system and progressing those with growing earnings into the next tax band. This is deemed ‘stealth’ taxation, on the assumption that tax breaks should increase in line with inflation. 

The statement will see millions of us facing higher tax bills. Below, we delve a little deeper into how these changes could impact your personal finances:  

Income tax: The basic and higher rate bands have been frozen for a further two years, until April 2028. The additional rate band (45%) has been reduced from £150,000 to £125,140, potentially bringing a further 250,000 taxpayers into the top rate bracket. This will take effect from April 2023.  

Dividends: The dividend allowance is reducing from £2,000 to £1,000 in April 2023, with a further reduction to £500 from April 2024. This means someone with a portfolio of £20,000 that yields 5% a year will reach the lower tax-free allowance of £1,000 from April 2023, while someone with a portfolio of £10,000 that yields 5% a year will reach the tax-free allowance of £500 from 2024.  

Inheritance tax: The inheritance tax nil rate band has been set at £325,000 per individual since 2009, and £650,000 for a married couple. The residential nil rate band of £175,000 can extend this to £500,000, or £1,000,000 for a married couple. Both had been frozen until April 2026 but that has been extended until April 2028. This extension is likely to mean more people will become liable to inheritance tax due to rises in house prices, for example.  

Capital gains tax: The annual exempt amount is reducing from £12,300 for individuals to £6,000 from April 2023. There will be a further reduction from £6,000 to £3,000 from April 2024.  

Pensions: The lifetime allowance limit for pensions remains frozen at £1,073,100 until 2026. 

State Pension: The state pension will increase by 10.1%. This keeps to the state pension triple lock, the system which guarantees the rise in the state pension will be the highest of 2.5%, average earnings growth, or the rate of inflation (CPI).  

Later life care: The Government’s planned social care reforms, which will limit how much an individual has to pay for social care, has been delayed by two years to 2025. Now, more than ever, there is a need to plan carefully to ensure you’re not paying more tax than necessary. Undertaking regular reviews can help you plan around this and other liabilities. 

If you are now in or believe you will move into a higher rate tax bracket, or need advice on any issues raised by the Autumn Statement – we’re here to help answer your questions. You can book your no obligation chat with one of our Financial Advisers, here.