Changes To The Income Tax Rates: How Will The Government’s Recent Announcement Affect You
Over the last week, Chancellor Kwasi Kwarteng’s ‘mini-budget’ announcement has been in all the headlines and looks set to have far-reaching implications for the economy in the years to come.
24th September 2022
Over the last week, Chancellor Kwasi Kwarteng’s ‘mini-budget’ announcement has been in all the headlines and looks set to have far-reaching implications for the economy in the years to come. While there is much debate over how this will affect the state of the pound and the strength of the UK’s financial sector, the changes to your individual income tax rate are relatively straightforward.
Today we’re going to be breaking down what the changes are and how they will affect you depending on which tax bracket you’re in.
Scrapping The Top Rate For Income Tax
The main change in Kwarteng’s budget is the decision to cut the top rate of income tax. Previously, high-earners were expected to pay a 45% rate on all earnings over £150,000 per annum. Under the changes outlined in the budget, the highest income tax rate will now be set at 40% for all earnings over £50,271. This is planned to incentivise more high-earners to move to the UK and to cut down on ‘brain-drain’ caused by high tax rates for the wealthy.
A Cut To The Basic Income Tax Rate
The government is also planning to bring forward a planned cut to the basic income tax rate – which applies to everyone earning more than £12,571 a year – from 20% to 19%. This will reduce the cost of income tax for almost all earners in the UK.
The budget also includes several smaller but nonetheless significant changes to the UK’s tax policy.
In England and Wales, property buyers will see a major cut to the rates of stamp duty. Properties below a value of £250,000 will now be exempt from stamp duty which is twice the previous threshold of £125,000. First-time buyers will also see their exemption go up from £300’000 to £450’000, theoretically making it easier to get onto the property ladder.
Businesses looking for tax breaks are also in luck as Kwarteng confirmed plans to bring in 40 new investment zones in Tees Valley, Norfolk, and the West Midlands. The investment zones represent part of the Chancellor’s planned move to shift the UK’s economic trajectory away from “redistribution” and instead to “focus on growth”.
Kwarteng’s budget will also scrap a planned increase in corporation tax. The increase would have seen the rate go up from 19% to 25%. The cap on banker’s bonuses will also be removed.
And finally, there are plans to simplify the UK’s tax system overall by scrapping the Office of Tax Simplification. The chancellor made it clear in his statement that individual departments would now be expected to focus on simplifying their own responsibilities.
What To Make of This Controversial Budget
Many of the decisions in the Chancellor’s budget announcement have proved controversial with some defending them as necessary steps towards encouraging economic growth while others have called them nothing more than tax cuts for the rich. Ultimately, only time will tell how these changes will affect the UK’s economy going forward.
Bradley Mcloughlin, Owner at Braant has this to say:
“This strategic change in taxation is more impactful than some previous official budgets and furthermore, it’s risky, with the objective to drive growth. Let’s hope for the nation, that the government pulls this off!”
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