In a surprise move today, Chancellor Kwasi Kwarteng axed the 45% Additional Rate of Income tax paid by 660,000 high earners.
The move was part of a sweeping package of personal and business tax cuts designed to stimulate growth.
The MiniBudget went further than many expected in cutting taxes and overhauling the tax system.
Many Financial Planners will have clients who pay the Additional Rate which will be axed from April. In future the highest rate of income tax will be 40p in the £.
From April all annual income above £50,270 will be taxed at 40%, the current higher rate of Income Tax.
The Treasury says the abolition of the Additional Rate is to “incentivise enterprise and hard-work and simplify the tax system.”
Fairstone Chartered Financial Planner Peter Savage said: “The highest tax rate earners received a lot of good news from Kwasi Kwarteng this morning. The Chancellor outlined £45 billion of tax cuts which include scrapping the 45% additional rate income tax band on earnings above £150,000, reversing the recent increase in national insurance contributions and cutting the basic tax rate by 1p to 19p from next April.
“Kwarteng also scrapped plans to raise corporation tax from 19% to 25% while delivering cuts to stamp duty, meaning the level at which house-buyers begin to pay stamp duty has doubled from £125,000 to £250,000.
“In an attempt at trickle-down economics, these £45 billion of tax cuts are designed to try to stimulate growth. These are the biggest tax cuts since 1972 and for anyone old enough to remember how that went, let’s hope this time it’s different. Britain is a country that imports more than it exports but with the pound continuing to fall this morning against the dollar, the currency market may not have the same belief as Kwarteng.”
In other major tax changes:
• Basic Rate of income tax will be cut from 20p to 19p in April, a year earlier than planned
• A planned Corporation tax rise to 25% will be scrapped and instead Corporation Tax will be cut to 19% in April
• Treasury says that on average, basic rate taxpayers should be £130 better off and higher rate taxpayers £360 better off in 2023-24 thanks to the cut to the basic rate
The income tax changes will apply to England, Wales and Northern Ireland with Scotland setting its own rates.
The changes mean that from April 2023 the highest rate of income tax will be 40%.
The Additional Rate currently applies on annual income over £150,000.
The cut to the basic rate is the first cut to the basic rate for 15 years.
• This is a breaking story. Check back later for updates and reaction.
