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The autumn budget was a relatively quiet one in relation to new personal tax announcements. The previously announced ‘freezing’ of the personal allowance and tax bands until April 2026 will see the majority of taxpayers paying more in personal taxes over the next 4 years, and thus significant changes in the personal tax sphere were few and far between. The personal allowance, basic rate and higher rate limits have been frozen at £12,570, £37,700 and £150,000 respectively until April 2026.
Similarly, the IHT Nil Rate Band (£325,000), CGT Annual Exempt Amount (£12,300) and pensions lifetime allowance (£1,073,100) will also be frozen until April 2026. The act of freezing the Nil Rate Band for another five years, effectively meaning it has been frozen for 17 years (!), will generate more IHT in itself as more deceased person’s estates are drawn into paying IHT.
The Office for Budget Responsibility’s (OBR) has forecasted significant increases in revenue in the coming years, with CGT revenue (currently £9 billion), set to increase by £3.5 billion due to rising asset prices without any changes to scope or rates.
Notably, a new tax was announced in early September, ‘The Health and Social Care Levy’, which will be applied to ‘earned income’ , similarly to National Insurance, at 1.25%. The Prime Minister also announced a 1.25% increase on all dividend rates to ensure that “…those with dividend income, like business owners and investors, will be making a contribution in line with that made by employees and the self-employed on their earnings…”. The OBR forecasts that these changes will raise £40 billion over the next 4 years. For context, total tax revenue for 2020/21 was £800 billion.
Some welcome news did come out however. The CGT reporting and payment window following the sale of UK residential property has been extended from 30 to 60 days. Previously the 30 day deadline was hard to meet for the unprepared due to the requirement to set up online accounts with HMRC to enable filing of the CGT reports. The change covers gains made by both UK and non-UK residents
The implementation of Making Tax Digital (MTD) for Income Tax Self Assessment has been delayed by a year due to the pandemic, and now won’t come into force until the 2024/25 tax year. Under MTD, businesses and landlords with annual business income of over £10,000 which is liable to income tax are obliged to make quarterly reports to HMRC. This change applies to sole traders, partnerships and landlords, and the £10,000 threshold is turnover, not profits. MTD was due to begin for income tax in April 2023, but the government has recognized the challenges that Covid-19 has brought on businesses, and that they will need more time to recover from the disruption.
In March 2021 the government proposed a new penalty system for late filing and late payment of self-assessment Income tax. This was then included in Finance Act 2021, Schedule 24. This penalty regime will now apply to those who join MTD in the 2024/25 tax year, and subsequently for all other income taxpayers in April 2025.
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