Stamp Duty, Income Tax, the bankers' bonus cap, and tax on the very richest 660,000 Brits has been announced in what’s been named “an aspirational budget”.
The mini budget announcement
£45bn tax cut announced as part of a “new era for Britain”
An extra £72 billion of borrowing this financial year alone
Referred to as an “aspirational budget” but workers ask how much harder can they work if their salaries won’t go up in line with inflation
Treasury officials suggest the richest people in society could benefit by £10,000 a year
But could cutting taxes help the highest earners employ more, pay more and spend more throughout the economy?
How do the new tax cuts affect me?
The cuts are designed to boost economic growth to 2.5% a year but for you specifically, depending on how much you earn and whether you plan on buying a property this year, it could have a much deeper financial effect.
Almost half of the personal tax cuts confirmed by chancellor Kwasi Kwarteng will go to the richest 5%of the UK’s population, according to the Resolution Foundation think tank.
Brits earning £200,000 will gain another £5,220 a year from the tax cuts, while people earning £20,000 will gain just £157.
What was announced in the budget tax cuts?
Basic rate of Income Tax cut by 1%
The basic rate of Income Tax on earnings over £12,570 will be cut from 20p to 19p in April 2023, one year earlier than expected. It is the first cut to the basic rate in 15 years.
Additional rate of Income Tax for the richest 1% of Brits has been cut
Chancellor Kwasi Kwarteng has replaced the 45% rate for the super-rich with a new 40% threshold. Instead of 45p they will pay 40p in every pound they earn over £150,000 a year.
National Insurance cut
The tax on earnings over £12,570 a year will drop from 13.25% back down to 12%. The change had been expected next Spring but was brought forward.
[H4]How much will that save you?
£30 a year
£93 a year
£155 a year
£218 a year
£280 a year
£343 a year
£405 a year
£468 a year
Corporation Tax cut
The planned rise in Corporation Tax from 19% to 25% in April 2023 has been scrapped. Originally, it was thought that the rise would bring in more than £17bn a year for the public finances by 2025.
However, the plan now is to cancel the increase in order to “get more businesses going in the UK” and to “generate more than £19bn a year into the wider economy”.
Stamp Duty cut
Effective today, the £125k tax-free threshold will double to £250k. The first-time buyer threshold rises from £300k to £425k. First-time buyers can claim that threshold on any property up to £625k - rather than £500k as the rules are now.
What does the Stamp Duty cut mean for first-time buyers?
Stamp duty land tax (SDLT) is a lump sum payment you have to make when purchasing property in the UK over a certain market value.
Therefore, cutting it could save homebuyers thousands of pounds and help to get more first-time buyers on the property ladder.
Currently, first-time buyers pay no Stamp Duty on the first £300,000 of a property purchase, but this threshold will be increased to £425,000. That saving could help many afford to buy a bigger property or borrow less as the money they would have otherwise spent on SDLT could be put towards their deposit.
Chancellor Kwasi Kwarteng also announced that the Conservative government is also going to increase the value of the property on which first-time buyers can claim relief from £500,000 to £625,000.
What were the previous Stamp Duty bands?
Before the mini budget announcement Stamp Duty was charged as follows:
No Stamp Duty is paid on the first £125,000 of any property purchase
2% - between £125,001 and £250,000
5% - between £250,001 and £925,000
10% - between £925,001 and £1.5 million
12% - above £1.5 million
For first-time buyers the threshold at which Stamp Duty is paid is £300,000. During the pandemic the threshold was raised to £500,000
What are the new Stamp Duty bands?
As of now, the new Stamp Duty bands are as follows:
No Stamp Duty is paid on the first £250,000 of any property purchase
5% from £250,001 to £925,000
10% from £925,001 to £1.5m
12% above the portion of a property worth over £1.5m
First-time buyers won’t pay any Stamp Duty on the value of a property worth up to £425,000
Have bankers’ bonus caps been axed?
To avoid risky trading, banker’s were previously capped on how much they could earn in bonuses but the new announcement has reversed that cap.
Since 2008, bosses haven’t been able to award more than twice an employee's salary.
Now, bankers can now be paid larger bonuses. Arguably, this could encourage riskier investments as bankers attempt to hit financial targets in order to reach those bonuses.
Are there any more announcements to come from the cabinet?
Reportedly, Liz Truss wants to allow the transfer of all personal tax allowances between married couples and civil partners where one earns below the £12,570 tax-free threshold.
Currently a lower earner can “gift” £1,260 of allowance – saving £214 tax after adjustments - but that could rise tenfold.
During the Tory leadership campaign she also didn't rule out lowering inheritance tax.
Get advice about the cuts announced in the mini budget
If you’re planning on buying a house this year, whether that be to live in, as an investment or to rent out, it can be a good idea to talk to a mortgage broker about how the new tax cuts affect your finances and whether it makes financial sense for you.
Our brokers can also discuss the latest interest rate rises and how that could affect the cost of your mortgage repayments and your choice of lender.
The Mortgage Hut are here to help with non-judgmental and confidential advice. Call 023 8098 0304 or fill in some basic details using our contact form. The right person will get back to you as soon as possible with the information you need.