Tax thresholds frozen

The Chancellor has announced that the income tax personal allowance and the majority of the thresholds will be frozen until 2028 – these were already frozen until 2026.

Freezing the thresholds means that tax bands will stay the same, even as people’s pay goes up. So as wages rise, the amount of earnings that you pay tax on will increase. As time goes on, more and more people will find themselves moving into higher tax brackets and paying more tax on their income over time.

The main National Insurance and inheritance tax thresholds will also be frozen for a further two years, until April 2028.

More people to pay top rate of income tax

There was one income tax threshold that changed; the threshold for when the highest earners start paying the top rate of tax will be brought down from £150,000 to £125,140. According to Mr Hunt ‘those earning £150,000 or more will pay just over £1,200 more a year’.

National Living Wage rises

At the other end of the spectrum, the National Living Wage will increase from £9.50 an hour for over-23s to £10.42 from April next year.

Capital gains and dividend tax changes

Tax-free allowances for dividends and capital gains will see sharp cuts. That means that those who have certain investments, or are planning to sell a second home or other valuable asset, could end up paying more tax.

The Chancellor announced that the amount you can earn from dividends without paying tax will be cut to just a quarter of its current value over two years. Similarly, the amount you can earn tax-free from capital gains will be cut to less than a quarter of its current level over the same time. While tax rates on dividends and capital gains aren't actually increasing, the reduction in the allowances mean those rates kick in sooner and tax bills for many will be higher.

Please be aware that if you live in Scotland, bands and rates of tax are different. You can find out more about Scottish tax rates here.

Huge increase in windfall taxes for energy firms

The Chancellor has confirmed that the energy industry will be hit with an expanded windfall tax of 35%, commenting: ‘I have no objection to windfall taxes if they are genuinely about windfall profits caused by unexpected increases in energy prices. But any such tax should be temporary, not deter investment and recognise the cyclical nature of many energy businesses’. He also announced a temporary 45% tax on older renewable and nuclear electricity generation claiming that together these taxes will raise £14 billion next year.

Energy bill assistance

In the meantime, household help with energy bills will be extended, but won’t be as generous as Liz Truss had previously announced.

A household using a typical amount of gas and electricity will pay £3,000 annually. This is up from the previous £2,500 Energy Price Guarantee. The scheme will run for 12 months from April. As a result, millions of households will see their energy bills go up by hundreds of pounds a year from April but according to experts, this figure could have hit £3,700 without government support.

The Chancellor also announced plans to make the motoring tax system fairer, with electric vehicles no longer exempt from Vehicle Excise Duty from April 2025.

State pension and benefits to rise by 10.1% from April 2023

It’s good news for retirees, as the Chancellor confirmed that the state pension triple lock pledge will be honoured and that pensions – along with means-tested and disability benefits - will rise in line with September's inflation rate of 10.1%. The government's review on the state pension age will also be published in early 2023.

On top of this, another £280m will be invested to help the Department for Work and Pensions tackle benefit fraud over the next two years.

Our view on the Autumn statement

Commenting on the announcements, our financial planning expert Shona Lowe said:

‘The Chancellor has called for stability and growth, and there’s no denying that this autumn statement was thorough in his attempt to deliver on this.

‘With a series of measures to support households amid the cost-of-living crisis, from retaining the energy price guarantee to increasing the national living wage next year, there is a lot to feel positive about. And his pledge to protect the pensions triple lock, meaning pensioners can expect the biggest ever increase in the State Pension next year, will be welcomed by our country’s large, retired population.

‘However, while many measures seem positive on the face of it, we mustn’t overlook that some will be less beneficial. For example, tax freezes on income tax and inheritance tax will mean millions now actually face paying more tax than before. There were clear attempts to avoid using the term ‘tax increases’ in this statement, but in reality, record wage increases and rising inflation will push many over these frozen allowances and thresholds. Taken together with reductions from next year in the capital gains tax allowance and dividend allowances, this will mean a bigger tax bill for many as a result.

‘With a government review on the pension age also announced for early next year, many nearing retirement could face a longer waiting game to receive the state pension benefit. They and others who benefit less from the changes announced will be looking for further detail on the measures, with clarity being important at what is a turbulent and challenging time for people.”

We're here to help

If you have any questions about how what’s been announced may affect you, get in touch with your abrdn financial planner. They’ll be happy to help.

The information in this article should not be regarded as financial advice. Information is based on our understanding in November 2022. Tax rules can always change in the future. Your own circumstances and where you live in the UK could have an impact on tax treatment. The value of investments can go down as well as up, and could be worth less than was paid in.