The UK Chancellor, Jeremy Hunt, delivered the Autumn Statement 2022 on Thursday, 17 November. This is the third major "budget-like" announcement in recent months (see our previous Client Alert here for the position prior to 17 November).
The most notable change for employees who participate in share plans is the reduction of the annual exempt amount for capital gains tax (CGT) from GBP 12,300 to GBP 6,000 from April 2023, and then a further reduction to GBP 3,000 from April 2024. The reduction in the annual exempt amount is likely to affect participants in tax-advantaged plans, especially the SAYE plan, disproportionately.
Furthermore, the income tax personal allowance threshold and higher rate threshold will remain unchanged until 2028. While the basic and additional rates of income tax will remain at 20% and 45%, freezing these thresholds will mean that more people who receive salary increases will be subject to higher rates of income tax, even if such increases are below or only match inflation.
Reduction of the annual exempt amount for CGT
The Autumn Statement announced that the annual exempt amount for CGT will be reduced from its current level of GBP 12,300 to GBP 6,000 from April 2023, and then will be further reduced to GBP 3,000 from April 2024. The Government anticipates that lowering the annual exempt amount for CGT (and the dividend allowance - see below) will raise over GBP 1.2 billion per annum for Government expenditure from April 2025.
Individuals in the UK are subject to CGT on any gain they realize in relation to assets (such as shares acquired pursuant to an employee share scheme) if their total capital gain for the UK tax year (6 April to 5 April) exceeds the exempt amount. CGT is payable on gains from all sources in excess of the exempt amount in any tax year and the rate(s) at which CGT is paid will depend upon the amount of that individual's combined taxable income and chargeable gains for the tax year. Actual CGT rates remain unchanged.
A reduction of the annual exempt amount will mean that more individuals can expect to be liable for CGT. This will have particular implications for tax-advantaged schemes such as SAYE, EMI and CSOP plans, as this will push employees into paying CGT at an earlier stage and increase the amount subject to CGT. These individuals, who may not have been expected to pay CGT before, will also now have the accompanying reporting obligations - individuals are personally responsible for (i) reporting any chargeable gains (or losses); and (ii) paying any applicable CGT on those gains directly to HMRC either through the self-assessment regime or via real time CGT reporting.
Employers may also wish to review their communications, particularly if there has been a strong SAYE maturity. This may include reminding employees about different ways to shelter gains, such as transfers to spouses or transfers into ISAs or registered pension.
Confirmation of other previously announced tax changes
The following other previously announced tax changes were re-affirmed in the Autumn Statement, with indications for when the Government would legislate such changes:
- CSOP: The increase in the CSOP option limit from GBP 30,000 to GBP 60,000 from 1 April 2023 for qualifying companies has again been confirmed and will be enacted by new legislation in 2023.
- Income Tax Rates: The basic rate of income tax will remain at 20% 'indefinitely' (no reduction to 19% in 2023), and the 45% additional rate of income tax will also remain as is. The income tax personal allowance threshold and higher rate threshold will be frozen until 2028. The threshold for the additional rate will be reduced from GBP 150,000 to GBP 125,140 from 6 April 2023.
- Dividend Tax Rates: The dividend tax rates will not be reduced. The 1.25% increase, which took effect in April 2022, will now remain in place. The dividend allowance will be reduced from GBP 2,000 to GBP 1,000 from April 2023, then to GBP 500 from April 2024.
- National Insurance: Thresholds for National Insurance contributions will be frozen until April 2028. The increase of 1.25% (in effect since April this year) was reversed from 6 November 2022.
The Government has indicated that an Autumn Finance Bill will be released dealing with more immediate changes (as per the above) and also a Spring Finance Bill will be released in 2023.
To access the 2022 Autumn Statement please click here.