Modest earners and asset holders to suffer more than the wealthiest
Posted on: November 18th 2022 · read
Those with modest assets will now feel the financial pain more than the wealthy, with extensions on tax threshold freezes indirectly targeting smaller portfolios.
For wealthier taxpayers, the Chancellor’s announcements will be less painful than the doom-laden pre-budget leaks, however those with more modest assets will be feeling the financial pain for years to come.
While the Chancellor refrained from increasing Capital Gains Tax in line with Income Tax, reducing the annual exemption from over £12,000 to £6,000 in 2023, then £3,000 in 2024 will be costly for the smaller investor. Those who rely on a modest portfolio to supplement their income will see markedly weaker dividend returns whereas wealthier investors will be relatively unharmed.
Fiscal drag means that the freeze in tax allowances will bring more modest earners into the higher rate bracket over time. Lowering the 45% tax threshold to £125,140 drags far more of the population into the highest tax rate and will cost existing 45% taxpayers an additional £1,200 per year.
Similarly, freezing the nil rate band of £325,000 for Inheritance tax will bring many more people into the much maligned 40% tax rate in the coming years. Today’s freeze means that by 2028 the nil band rate will have remained unchanged for 19 years during which time it will have reduced in real value by approximately 66% or more depending upon inflation.
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