On Friday 23 September 2022 the chancellor announced tax breaks in an attempt to stimulate the economy due to the cost of living crisis. Most experts are saying this mini budget resulted in the biggest tax breaks given since 1972. We take a look at the key events and ask what is longer term impact on the UK property market ant the economy overall.
There have been a number of significant changes to personal tax rates. Below we list these key changes:
Removal of the highest rate tax bracket
From April 2023 the higher rate of tax (45%) will be removed. This change does not automatically apply in Scotland where the Scottish Government sets the income tax rates and bands.
Basic rate tax change
The basic rate of income tax will be reduced to 19% from April 2023. This represents a 1% cut. Again, this change does not automatically apply in Scotland. As the Scottish Government sets the income tax rates and bands due to devolution.
National Insurance Contributions
Employees’ NIC will be reduced by 1.25% from 6 November 2022. Additionally, the government will repeal the proposed 1.25% Health and Social Care Levy which was to apply from 6 April 2023.
The 1.25% increase in dividend tax rates will be reversed applying UK-wide from 6 April 2023.
Bankers bonus cap
The Prudential Regulation Authority will remove the current cap on bankers’ bonuses. Under current legislation, the cap limits the remuneration of certain bank staff to 100% of their fixed pay. Though this can be up to 200% with shareholder approval.
Stamp Duty Land Tax
The Stamp duty land tax (SDLT) threshold above which SDLT must be paid will be increased to £250,000 (current threshold is £125,000).
For first-time buyers, the threshold on which they pay residential SDLT will increase. It will become payable on properties on or above £425,000. This is an increase from the previous rate of £300,000. Furthermore, the maximum value of a property on which first-time buyers relief can be claimed will also increase to £625,000 from £500,000 previously. These STLT reductions only apply to England and Northern Ireland.
This represents a large boost to the UK property market as first-time buyers and house movers will pay less tax when buying a residential property. This move has been welcomed by estate agents.
SEIS increased threshold
From April 2023 growth companies can increase their SEIS offering to investors. The threshold will now rise to £250,000 for qualifying companies. This is great news for investors who want exceptional tax breaks on their investments. Esper Wealth has recently introduced an SEIS and EIS approved investment for qualifying investors.
Business tax cuts
The Chancellor of the Exchequer, Kwasi Kwarteng, has announced several generous business tax breaks to increase confidence amongst business owners. We list the key changes below:
Corporation tax will remain at 19% for all profits and not increase to 25% in April 2023 as previously announced. This will help businesses with their net profit margins. For larger property investors this is also welcome news. This is because many seasoned property investors have their buy-to-let property portfolio structured as a business in response to the removal of mortgage interest rate relief. Previous changes to the higher rate in line with the freeze in the main rate, the Diverted Profits Tax rate will remain at 25%.
Banking Corporation Tax Surcharge
Due to corporation tax rate remaining at 19%, the scheduled change to the rate of the Bank Corporation Tax Surcharge will be cancelled. From April 2023 banks and building societies will continue to pay an extra 8% rate of tax on their profits.
Introduction of Investment Zones
New Investment Zones across England will be set up, with funding for the devolved administration to allow them to introduce equivalent areas. Areas with Investment Zones will benefit from tax incentives, planning liberalisation, and wider support for the local economy. The tax incentives (similar to freeports) intended to be included are:
- Business rates – 100% relief from business rates on newly occupied business premises, and certain existing businesses where they expand in English Investment Zone tax sites.
- Enhanced Capital Allowance – 100% first year allowance for companies’ qualifying expenditure on plant and machinery assets for use in tax sites.
- Enhanced Structures and Buildings Allowance – accelerated relief to allow businesses to reduce their taxable profits by 20% of the cost of qualifying non-residential investment per year, relieving 100% of their cost of investment over five years.
- Employer National Insurance contributions relief – zero rate Employer NICs on salaries of any new employee working in the tax site for at least 60% of their time, on earnings up to £50,270 per year, with Employer NICs being charged at the usual rate above this level.
- Stamp Duty Land Tax – a full SDLT relief for land and buildings bought for use or development for commercial purposes, and for purchases of land or buildings for new residential development.
The temporary annual investment allowance (AIA) will become permanent at £1m.
Business National Insurance Contributions
Health and Social Care Levy is cancelled through a Bill introduced on 22 September 2022. This Bill cancels the proposed introduction of the Health and Social Care Levy. It also repeals the 1.25% employers NIC rate increase with effect from 6 November 2022. This is for payments of earnings to (non-director) employees. Where NIC is payable on an annual basis, new blended rates are to be applied to deliver a similar economic effect.
Adjusting super-deduction rules
A number of the technical provisions for the super-deduction will be changed due to Corporation Tax staying at 19%. This will make sure that the relief continues to operate as intended. The availability of super deduction is still expected to end on 1 April 2023.
Repealing off-payroll working reform
The 2017 and 2021 reforms to the off-payroll working rules (IR35) will be repealed from 6 April 2023. This means that, from this date, workers across the UK providing their services via an intermediary, such as a personal service company, will once again be responsible for determining their employment status and paying the appropriate amount of tax and NICs.
Others taxes and duties
The duty on alcohol will be frozen in Feb 2023, whilst VAT purchases by non residents on the high street will be exempt from duty. Both schemes are welcome breaks for the pub and restaurant trade as well as retail stores.
Although this mini-budget has drawn heavy criticism from some sources, we feel that some of the tax breaks are a benefit. From an investor’s perspective, the UK property market looks more attractive. This is due to reduced stamp duty in addition to the BoE allowing more flexibility for mortgage borrowers. Whilst increasing tax allowances for the Seed Enterprise Investment Scheme is a benefit to entrepreneurial companies and investors alike. However, we are not sure that the markets and the electorate will like the reduced taxation of the highest earners. Money could be better spent helping those who need it most.