The UK’s new Chancellor, Kwasi Kwarteng, delivered a mini budget on Friday 23rd September 2022. This new mini budget includes updates on tax cuts and changes to Stamp Duty and more.
Here are the highlights you need to know and how each key point could impact your wallet.
Key points from the mini budget
The UK has changed a great deal since the Spring Budget announcement. We're now in a recession, the Russia-Ukraine war continues and the rising cost of living is taking its toll on homes across the country.
Truss’ new government proposed many measures and cuts they hope will help boost the economy in their 2022 mini budget.
The basic rate of income tax cut
The basic rate of income tax will be cut from 20% to 19% from April 2023, a year earlier than planned. The cut will apply to you if your annual earnings fall between £12,571 and £50,270.
According to HM Treasury, this change will save an average of £170 per year for 31 million Brits.
What does this mean for your wallet?
The cut means that if you earn more than £150,000 a year, you’ll pay the same rate as workers that are in the £50,000+ bracket. The government says basic-rate taxpayers will have an extra £130 in their pockets in 2023-2024. And a cut from 45 to 40% also means higher earners will get an average tax cut of £10,000 per year.
This cut also means that pension tax relief will also affect how much the government will contribute to your private pension pot. Let's say for example, that you're a basic rate taxpayer that wants to put £100 into your pension pot. Under the previous income tax rate of 20%, you would only need to put in £80 and the government would contribute £20.
Now, to save the same amount, you’ll now need to put in an extra pound, making it £81, as the government will only contribute up to £19.
National Insurance reversal
The April 2022 increase of some National Insurance rates by 1.25 percentage points has been scrapped. This tax cut will begin in April 2023 - a year earlier than planned. In its place, the government plans to set up low-tax investment zones throughout the UK.
The change will see almost 28 million Brits save an average of £330, according to the Treasury.
What does this mean for your wallet?
From 6 November 2022, most workers could expect a reduction in National Insurance reflected in their payslips. But, you may not see a cut until January 2023, depending on when your employer updates their payroll system.
To give you an idea of how much you can expect to save, MoneySavingExpert estimates this could give you an average of £467.88 if your annual salary is £50,000.
Stamp Duty cut
Chancellor Kwarteng announced Stamp Duty will be immediately cut for many home buyers in England and Northern Ireland from 23rd September.
This change sees the threshold for stamp duty liability rise to £250,000 if you’re buying a property that isn’t your first home. The threshold also increased from £300,000 to £425,000 if you’re a first-time buyer.
What does this mean for your wallet?
If you’re looking to get on the housing ladder as a first-time buyer and your future home costs less than £250,000, there’s no stamp duty to pay. But, if your home costs between £425,000 and £625,000, you’ll now pay a reduced rate.
Frozen duty rate for alcohol
Chancellor Kwarteng also announced an alcohol duty freeze for beer, cider, wine and spirits from February 2023. The decision cancels all planned duty rate increases.
What does this mean for your wallet?
The freeze means you can expect savings when you buy beer, wine, spirits or cider. So, how much could you expect to save? A tweet from HM Treasury revealed you can expect to save 4p on a pint of cider and 7p on a pint of beer. Non-beer drinkers can also expect savings of 38p on a bottle of wine and £1.35 on a bottle of spirits.
Of course, this development should be welcome if you work in the drinks industry. But with the cost of living meaning many people aren’t going out as often, this new development may not be so positive if you’re a bar, pub or restaurant owner.
VAT-free shopping for tourists
Tourists to the UK can get a value added tax (VAT) refund on their purchases. The scheme enables tourists to redeem a refund for goods they bring home in their personal luggage if they’re bought at a UK high street shop, airport or other departure point. There is no set date for when the scheme will begin, but it’s expected to start in 2024-2025.
What does this mean for your wallet?
In theory, this should be positive news if you’re a retail business owner in 2024/25. As the measure promises savings, it should encourage tourists to make more impulsive purchases, rather than buy elsewhere.
What does the mini budget mean for your finances?
As we’ve explained above, new changes have come into effect as a result of the 2022 mini budget. How they affect your finances depends on your individual circumstances.
Time will tell how well these measures benefit the UK over the coming months. But if you’re concerned about how the mini budget will affect your finances, it may be worthwhile speaking to a financial adviser.