Another week brings another set of U-turns from the current government. Not sure anyone believes Liz Truss being capable of running this country at this point. This time the change impacts the income tax that all of us pay on our salaries.
Not only the new chancellor announced that the tax cuts wouldn’t go ahead. On top of that, he announced further bad news for households. The second bad news will impact the energy price cap.
I will give a brief summary of these points below. The below should give you a good understanding of what is staying and what is being abandoned…. Before this all gets thrown up in the air once again by the end of the week.
what are the income tax changes
So, a short summary of all the income tax related changes is that there is no change from what we had before this mess started.
The previous chancellor was promising to put more cash into the pockets of workers. His proposal was based on reducing the current basic income tax.
Currently basic income tax sits at 20%. The proposal was to reduce this down to 19%. This change could unlock a maximum saving of £370 per year for someone earning at the top of the basic tax bracket.
What this would do, for every extra £1,000 you earn above £12,570 tax free allowance – you would take home extra £10 a year. This isn’t a massive help. Every extra pound in your pocket is a good thing and not a bad one for sure.
Due to the scale of this saving and the fact that the previous government had no way to fund this – the tax cut had to be taken off the table.
This would only be reviewed as an option when the financial health of the economy will be in a much better state. I would suggest – that’s many years away.
what’s happening with national insurance?
As I mentioned in one of my previous articles – 1% tax cut wasn’t the only benefit we were due to get. The other benefit was a cut to the National Insurance of additional 1.25%.
The good news is – this is here to stay… for now. With the current government it is hard to predict what the changes will be. You also don’t know, when are these due to strike.
This saving is due to kick in as of early November 2022. The saving will only benefit those who make over £12,570 per year. For anyone earning less than that – you currently pay no National Insurance at all.
The saving will be a reduction of 1.25% in the National Insurance you pay. The current 13.25% will go down to 12%.
So it will be a saving of £93 per year if you earn £20,000 per annum. £218 per year if you earn £30,000. £343 if you earn £40,000. And so on… For every additional £10,000 you earn, you will save extra £125 in NI.
This saving will benefit everyone no matter what your current salary is. The savings above are figures per year.
did stamp duty follow the income tax?
This is another bit of sunshine in a gloomy list of U-turns. Luckily, the positive changes to stamp duty are here to stay. The only thing I need to add – this is for now…
The full list of changes to stamp duty can be found here. However I will put a very short summary of these below.
First time buyers are now able to buy a more expensive property without having to think about stamp duty.
Also, regular stamp duty is cheaper for those looking to move. This allows you to buy a more expensive property without paying a penny in stamp duty.
and what about the energy cap?
The bad news that is likely to impact us all – the energy cap that is currently set at £2,500 per year for an average household will end in March 2023. The previous statement was – the price lock is in place for 2 years. The chancellor wasn’t able to say what the future of this will look like from the next financial year.
What this theoretically means – that energy can become significantly more expensive next year. There is a chance that the government will introduce a new limit of some sorts however we won’t know it for certain for a while.
This won’t be the news most of us will want to hear. The positive here is – we get more time to prepare for this. At least this years winter the prices are set and there are no nasty surprises to learn about now.
summary
The current government is not giving anyone much confidence. However, I would suggest focusing only on things that you can control.
The loss of the income tax saving is not a great thing to learn about. On the flip side – there is a national insurance saving that we will still get to pocket.
As well as people looking to buy property will be able to get a benefit in a way of saving themselves on stamp duty.
The biggest watch out here in my view is – keep an eye on the news of what the energy prices likely to change to as of April 2023. There might be a benefit in locking your prices at some point. At this stage I would simply keep an eye on the updates that impact this going forward.
If you want to understand what your income tax might look like – there are many online tax calculators available.
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