There was, once again, considerable speculation regarding changes to the existing Capital Gains Tax (CGT) and Inheritance Tax (IHT) regimes. Some viewed the current economic situation as an opportunity to be bold. However, the Chancellor has refrained from making material changes in these areas and also made no announcement regarding the introduction of a wealth tax.

Individual taxpayers do, however, need to take note of changes coming in and other announcements made in the Autumn Budget. 

Tax bands and rates

As previously announced, tax bands, personal allowances and the CGT annual exemption will remain frozen at current levels until 5 April 2026.

Personal tax rates generally remain unchanged but, as announced on 7 September 2021, the rates of income tax applicable to dividend income will increase by 1.25% with effect from 6 April 2022.

The basic rate of tax on dividend income will increase to 8.75%. The higher rate will increase to 33.75% with the additional rate set at 39.35%. These changes will affect the rates of tax for individuals, estates and trusts.

Prior to this rate increase, when considering income extraction by a shareholder in a family company, it was generally the case that dividend income resulted in a lower effective rate of tax than salary. The increased rate of tax on dividends will close the gap but dividends are likely to remain the more tax efficient method of extraction. 

Basis period reform

This reform will affect self-employed traders, partners in trading partnerships and other unincorporated entities with trading income, including trusts and estates. The intention of the reform is to simplify the current basis period rules.

The effect of the reform will be that assessable profit will comprise the actual profit arising in the tax year ended 5 April regardless of accounting periods adopted for other purposes.

The new rules will come fully into force from 6 April 2024, but specific advice will be required on how tax payments will be impacted by the reform, including complex transitional rules which will apply in 2023/2024. 

Delay to Making Tax Digital for Income Tax Self-Assessment

The government will give sole traders and landlords with income over £10,000 an extra year to prepare for Making Tax Digital. MTD for ITSA will now be introduced from 6 April 2024. General partnerships will not be required to join MTD for ITSA until 6 April 2025. 

CGT payment on property disposal time limit extension

The deadline for UK residents to report and pay CGT after selling UK residential property will increase from 30 days after completion to 60 days. For non-UK residents disposing of any type of property in the UK, the deadline will also increase from 30 days to 60 days.

Get in touch

If you have any queries on the topics covered above, please contact Kevin Bell, partner, KPMG in Belfast.