We’ve summarised the key points relating to pensions and investments announced by the Chancellor in the new Growth Plan on 23 September 2022.
Note that changes to income tax on earned income, stamp duty and planning issues are devolved powers and do not apply in Scotland.
Investments and Tax
Dividend Taxation
From 6th April 2023, the dividend tax rate will be reduced by 1.25%, meaning the tax rates will return to 7.5% or 32.5%. The additional rate of dividend tax will be abolished from April 2023.
Income Tax
From 6th April 2023, the basic rate will be reduced from 20% to 19% and the 45% additional rate of tax will be abolished. These changes won’t apply to non-savings and non-dividend income for Scottish resident taxpayers. Those taxpayers who would have otherwise been additional rate taxpayers will now qualify for a £500 personal savings allowance from 6th April 2023.
National Insurance Rates
National insurance rates for employers, employees and the self-employed will decrease by 1.25% from 6th November 2022 and the planned introduction of a separate social care levy from 6th April 2023 has been reversed.
Corporation Tax
The planned 6% increase to corporation tax rates will no longer take effect from April 2023 and corporation tax rates will instead remain at 19% regardless of the amount of profits the company makes.
Off-payroll rule changes (also known as IR35)
The IR35 rule changes which came into effect in 2021 will be reversed and, as a result, from 6th April 2023 workers, such as contractors, who provide their services through an intermediary will resume responsibility for determining their employment status and accounting for income tax and national insurance.
Pensions - Tax relief for pensions contributions
Basic rate tax relief
The government brought forward the planned reduction in basic rate tax from 20% to 19% to 6th April 2023 (from 6th April 2024). Alongside this, they announced that there’ll be a one-year transitional period for pension schemes operating the relief at source (RAS) method of claiming pension tax relief – schemes can continue to claim 20% tax relief on pension contributions until 5th April 2024.
This will benefit members of pension schemes operating RAS (relief at source) but means that those contributing to occupational pension schemes where the employer operates the net pay arrangement, such as Master Trusts, will get 1% less tax relief on their pension contributions for the 2023/24 tax year.
There’s currently no information on how this transitional period will affect Scottish taxpayers, who currently get 20% tax relief on contributions where earnings are subject to the 19% tax band and who can claim a further 1% tax relief on contributions where they pay income tax at 21%.
Additional rate tax relief
Individuals who pay additional rate tax at 45% may be able to claim additional rate tax relief on their pension contributions. The extra tax relief available depends on the total personal contributions paid and the individual’s total income. With the abolition of the additional rate tax band from 6th April 2023¹, it will no longer be possible to claim additional rate relief of 45% for pension contributions.
From 6th April 2023, the maximum rate of tax relief available will reduce to 40%¹ in England, Wales and Northern Ireland.
Reform of regulatory charge cap for occupational DC schemes
The DWP’s consultation on draft regulations to make changes to the regulatory charge cap for default funds of auto enrolment schemes was published on 30th March 2022.
The government announced that they were bringing forward the draft regulations ‘to remove well-designed performance fees from the occupational defined contribution pension charge cap’. There’s no technical detail on how this will work at the moment, although the consultation paper does give an indication of the direction of travel.
Salary sacrifice
The change in employer and employee National Insurance (NI) rates from 6th November 2022 will affect salary sacrifice calculations. The employer NI saving will change from 6th November 2022 from 15.05% of the sacrificed amount to 13.8%, and the employee NI saving will similarly reduce from 13.25% to 12%.
Removing caps on bankers’ bonuses
The cap on bonuses that bankers can receive on top of their salaries has been scrapped. This was introduced by the European Union in the wake of the global financial crisis, and meant bankers’ bonuses could not be higher than twice their annual salary.
Tighter rules on Universal Credit
Universal Credit claimants who earn less than the equivalent of 15 hours a week at the National Living Wage will have to regularly meet with their work coach and actively take steps to increase their earnings, or risk having their benefits cut. The government believes this will bring a further 120,000 people into the more intensive work search regime.
Shopping
Planned increases in the duty rates for beer, cider, wine and spirits have been cancelled, and VAT-free shopping for overseas visitors will be introduced.
Energy bills
The government has already announced that typical household energy bills will be capped at £2,500 annually until 2024. The Chancellor has now confirmed that the total cost of this energy package is likely to be around £60 billion for the six months from October.
A separate package of support for businesses was also announced prior to the mini Budget, which means energy bills for UK businesses will be cut by around half their expected level this winter, with wholesale gas and electricity prices for firms being fixed for six months from October 1st.
Sources: Aegon UK plc & The Content Store
It is important to take professional advice before making any decision relating to your personal finances. Information within this article does not provide individual tailored investment advice and is for guidance only. We cannot assume legal liability for any errors or omissions it might contain. Ethical Futures llp is authorised and regulated by the Financial Conduct Authority.