NEWS & VIEWS
Tax Talk is a regular series written by FSL’s tax expert, Alex Ranahan. Alex has nearly ten years’ experience as a tax adviser and analyst. He is accredited by The Association of Taxation Technicians and was recently elected co-chair of the Tax Committee for The Investing and Saving Alliance.
Alex’s Tax Talks are on general topics and are not tax or financial advice. If you are unsure of the tax treatment of a transaction, we encourage you to seek the appropriate tax advice.
Chancellor changes
Quiz question: how many Chancellors of the Exchequer have there been in 2022?
How did you do? Well, how about another quiz question: can you name every Chancellor of the Exchequer in 2022?
The fact that you might even have to think about these two questions is a sign of the swerves, dives, ups and downs we have had this year in the UK.
In January, we had Prime Minister Boris Johnson pursuing an economic agenda of growth via ‘levelling up’, backed by Chancellor Rishi Sunak – a name that might pop up again later.
March’s Spring Statement saw an amendment to the National Insurance thresholds for employees and the self-employed so that the less well off were not paying as large a share of their income in tax. The other main headline was that the basic rate of income tax would be reduced from 20% to 19% from April 2024, a policy delivered with a smile that firmly indicated its wearer anticipated a far better reception than it actually got. It seemed people felt that food and fuel becoming too expensive right now was not best countered with a tax cut in two years’ time. But no matter because by July the Chancellor had resigned along with 60 others in the Government, a new Chancellor had been appointed, that Chancellor then resigned too, and on until the Prime Minister himself resigned and off kicked a summer of campaigning.
More policy changes
July also saw the publication of a long-sought-after policy paper from the Government which changed the rules on spousal transfers between separating couples. Essentially, if a married couple separates with a view to divorce, the rules said they could only exchange assets tax-free until the end of the tax year. After that, they would potentially have to pay capital gains tax on every asset exchange. It could even mean that a departing spouse transferring their ownership of the matrimonial home to the other spouse would be taxed.
The new policy said this would cease from 6 April 2023 and transfers could be made tax-free for three years after separation or up to the final date of divorce. ‘Phew’, said every tax adviser and accountant who had had to have that particular conversation.
September saw the new Liz Truss-led administration offer £60 billion additional spending together with £45 billion of tax cuts in the ambitiously-named ‘Mini Budget’. The aforementioned cut from 20% to 19% would be brought forward to April 2023, the additional rates of tax for the highest earners in the country would be scrapped, and the National Insurance rise was cancelled from November.
Okay, I’m starting to get dizzy here, maybe just a breather – sorry, a dividend tax cut too? And ordering the closure of the Office of Tax Simplification? That’s a lot to keep track of.
Prime Minister changes
By October we were on to a third Chancellor, who swiftly announced we were back to a 20% basic income tax rate for the foreseeable future and he was reversing most of the September announcements. Journalists, columnists, and tax professionals sighed and updated their documents now entitled ‘2022-23 tax rules v6 (reviewed) final FINAL’, only to be nudged and told that a third Autumn Budget was on the way in November.
Oh, and we were on to a third Prime Minister: a certain Rishi Sunak.
And so came November’s Budget, because why shouldn’t November get its own Budget too?
We learned that people will call anything ‘sensible’ if it has been preceded by a surfeit of silliness – especially if the sensible policies were only being put in place to counteract the effects of the prior silliness. The point at which the top rate of income tax is paid would now be lowered from £150,000 to £125,000, marking quite the reversal of Government policy from two months earlier. The dividend allowance and capital gains annual exemption would each be halved from next year and then halved again the year after, and various tax thresholds would be frozen until 2028 in order to ensure that the generational-high-and-rising rate of inflation is felt as much as possible by as many people as possible.
Aaaaaand breathe…
Done your breathing?
Good: another Budget has just been announced for 15 March 2023. Being completely honest, despite the tone I’ve taken in this blog post thus far, at this point I am looking forward to it. What can I say – I’m a glutton for punishment.
Looking ahead
I’ve written previously about the work of the Office of Tax Simplification and certain proposals I expect to become policy. The salient point here is that we have a roadmap for ways to improve the tax system, yet an economic picture that demands focus on raising Government revenue. I will hope that both aspirations can be achieved at once.
Next year will see overall inflation of 7.4%, still high by recent historical standards but down on the 9.1% of 2022. How the tax system deals with rising prices when incomes are rising by far less – 6.9% in the private sector and 2.7% in the public sector – will be a huge challenge. Some of the policy hopes among tax professionals may be put to one side. I expect investment tax to flex in some way to bring in its fair share of any additional public revenue demands – the question is what that will be.
Quiz questions answers: there have been – at the time of writing – four Chancellors of the Exchequer in 2022: Rishi Sunak, Nadhim Zahawi, Kwasi Kwarteng, and Jeremy Hunt.