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In what has been billed as the biggest tax-cutting event since 1972, new chancellor Kwasi Kwarteng has outlined a series of tax reforms intended to stimulate investment into the UK and attract international high-net-worths, talent and businesses.
The Growth Plan 2022 has introduced cuts to income tax and abolished the planned increase to national insurance in order to simplify the system and make the UK a more attractive jurisdiction for wealthy individuals:
- The planned 1% cut (from 20% to 19%) to the income tax basic rate is to be brought forward by 12 months to April 2023.
- From April 2023, the additional rate of income tax will be abolished so that there will be a single higher rate of income tax of 40%, rather than an additional rate of 45% on annual income above £150,000.
- The recent 1.25% increase to dividend tax rates will be abandoned with ordinary and upper rates of dividend tax set to be reduced to their 2021-2022 levels (7.5% and 32.5% respectively) from 6 April 2023. Due to the abolition of the additional rate of income tax, income that was previously charged at the additional rate will now be charged at the upper rate of 32.5%.
- National Insurance rates are set to be reduced from 6 November by 1.25% and the separate Health and Social Care Levy due for April 2023 has now been cancelled.
It is easy to see that this will be advantageous for high earning individuals. It is perhaps less obvious that the changes also reduce the rates of income tax for UK resident trusts which pay income tax at the highest rates on all income over their (smaller) personal allowances. UK resident trusts will now pay income tax at the higher rates and not additional rates from 6 April 2023. We have already seen a move towards the UK as a jurisdiction for trusts and other structures – might these changes encourage more trusts to be set up in, or move to the UK?
However, this may also have the unintended effect of reducing the tax payable in respect of certain offshore structures. UK resident individuals who create, or benefit from, offshore structures which have been set up to avoid UK tax, can be liable for income tax on income arising in the structure. The changes mean that the highest tax rate will be 40% rather than 45% as currently – potentially therefore reducing the tax cost for some of using an offshore structure!
Stamp Duty Land Tax (SDLT) for residential property transactions completing on or after 23 September 2022 has been reduced. This gives an effective £2,500 saving for all individual purchasers paying £250,000 or more, with further savings for first time buyers, comprised as follows:
- The no-tax threshold for the standard rates of SDLT has been increased from £125,000 to £250,000, with the previous starting rate of 2% now scrapped.
- Purchases liable to the additional 3% rates of SDLT also benefit from a corresponding change, with the lowest 3% tax threshold increased from £125,000 to £250,000 and the previous 5% rate scrapped.
- The no-tax threshold for First Time Buyers’ Relief has been increased from £300,000 to £425,000 and the maximum value for the relief has been increased from £500,000 to £625,000.
It is worth noting that there has, however, been no change to other SDLT rates, including the non-residential rates which apply to commercial and mixed-use transactions, the higher rate of 15% that applies to certain companies purchasing residential properties and the non-resident surcharge of 2% which is added to certain purchases of residential properties by non-UK residents. The additional 3% rates that apply to some purchases of second homes and by companies which qualify for relief from the higher rate also continue to apply, albeit now with an increased threshold for the lowest rate (as mentioned above).
There has also been no change yet to SDLT multiple dwellings relief or the rates of SDLT which apply to mixed-use transactions, despite the Government having consulted on this.
The previous £1m level of the Annual Investment Allowance that was originally billed as being temporary has now been made permanent.
The planned increase in the corporation tax rate to 25% from April 2023 has been cancelled and the rate will remain at 19% for all companies. Businesses planning significant disposals will now be under less timing pressure and may now be able to consider additional reinvestment or investment returns.
The 2017 and 2021 reforms to the off-payroll working rules (commonly known as IR35) will be repealed from 6 April 2023. As a result, the onus will now be on individuals and their personal service companies to ensure compliance with UK employment tax rules, rather than the businesses engaging them. This marks part of the Government’s wider push to reduce the compliance burden on businesses, although it is at odds with the recent trend of making larger businesses responsible for the tax compliance of those they deal with (such as the PAYE system, the Construction Industry Scheme and the Tax Code of Practice for Banks).
Investment Zones will be established which will benefit from time-limited tax reliefs, such as:
- A 100% business rates relief on newly occupied and expanded premises.
- Full SDLT relief in certain cases.
- No employer national insurance contributions on new employee earnings up to £50,270 per year.
- A 100% first year enhanced capital allowance relief and accelerated Enhanced Structures and Buildings Allowance relief of 20% per year.
From April 2023, companies will be able to raise up to £250,000 of Seed Enterprise Investment Scheme (SEIS) investment, up from the previous limit of £150,000. To enable more companies to use SEIS, the gross asset limit will be increased to £350,000 and the age limit from two to three years. The annual investor limit will also be doubled to £200,000. Given the valuable tax benefits offered by SEIS (and its sister relief, EIS), the scheme will now attract further interest from start-up businesses and investors.
From April 2023, qualifying companies will be able to issue up to £60,000 of Company Share Option Plan (CSOP) options to employees, double the current £30,000 limit. Eligible businesses will therefore be able to let employees enjoy a greater share in their growth.
The scheduled change to the rates of Diverted Profits Tax and the Bank Corporation Tax Surcharge have been cancelled.
The Office of Tax Simplification (OTS) will be abolished and the Government will instead mandate HM Treasury and HMRC with simplifying the tax code. It remains to be seen whether those departments will achieve any greater success than the OTS; a task made no easier by some of the chancellor’s latest announcements.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, September 2022