Mini Budget 2022: How Will it Affect You?

From an earlier than expected cut in income tax to significant cuts to stamp duty for home buyers, the mini-budget 2022 was anything but small.

Tim Leonard Published on 23 September 2022.
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Mini Budget 2022: How Will it Affect You?

Chancellor Kwasi Kwarteng has delivered what has been dubbed a mini-budget, but it included some big announcements. Here are the main points and what it could mean for you.

How will the mini-budget affect my personal finances?

Income Tax

A reduction in the basic rate of income tax to 19% from its current level of 20% that was planned for April 2024 will now come into effect from April next year.

According to the government, the move will see some 31 million taxpayers in England, Wales and Northern Ireland pay on average £170 less a year in tax.

At the same time, the 45% additional rate of income tax paid by those earning over £150,000 will be scrapped. Instead, the 40% higher rate of income tax payable on earnings above £50,270 will be the top rate.

These announcements don't affect taxpayers in Scotland, where income tax rates are different and set by the Scottish government.

National Insurance

The 1.25% rise in National Insurance introduced in April is now being reversed in a move that is estimated will leave around 28 million people £330 a year better off.

National Insurance rates will return to their previous levels from 6 November this year, with basic-rate taxpayers typically gaining £75 in the 2022/23 tax year, and £175 in 2023/24. Higher-rate taxpayers will be, on average, £300 better off this tax year and £700 next, while additional-rate taxpayers will gain around £1,650 in 2022/23 and £3,890 in 2023/24.

Around 920,000 businesses are expected to save around £9,600 in average contributions annually too.

Stamp Duty

The stamp duty threshold for buying a property in England and Northern Ireland has been raised from £125,000 to £250,000 with immediate effect. The move is expected to mean that around 200,000 more people will be able to buy a home each year without needing to pay any stamp duty at all.

At the same time, the threshold for first-time buyers has been raised, so there is no stamp duty to pay if you pay less than £425,000 to get on the property ladder. Previously, the threshold was £300,000.

The value of the property on which first-time buyer stamp duty relief can be claimed has also increased, from £500,000 to £625,000.

Savings

The income tax changes are positive news for savers whose nest eggs are outside a cash ISA and earn more in interest than the personal savings allowance. That’s because income tax is payable on this excess interest, but with the reductions, they’ll pay less tax.

Meanwhile, the scrapping of the additional-rate tax band is also likely to see savers who currently fall into this tax band, and so miss out on a personal savings allowance, find they are allowed to earn £500 in interest tax-free from April next year.

» MORE: ISA or savings account - which do I need?

Pensions

The changes to income tax mean retirees taking an income from annuities and pension drawdown can expect to see a reduction in the amount they pay in tax from April next year.

On the other hand, incentives for pension savers will take a slight hit, with basic-rate taxpayers seeing a reduction in the pension tax relief they are afforded. Instead of receiving an additional £20 for every £80 contributed, from April next year this will change to £19 for every £81.

Additional-rate taxpayers will also see the relief available to them fall to 40%, down from 45% at present.

Benefits

Around 120,000 people who claim Universal Credit and earn less than the equivalent of 15 hours a week at National Living Wage have been told they must “take active steps to increase their earnings or face having their benefits reduced”.

Meanwhile, jobseekers over the age of 50 will be allowed additional time with jobcentre work coaches to aid their efforts to find work.

Energy Bills

The announcements had been made previously, but the Chancellor took the opportunity to reiterate how the government intends to help households and businesses tackle energy price rises.

It’s estimated the energy price guarantee, which will effectively replace the existing energy price cap from 1 October this year, will save the average household £1,000 a year on their gas and electricity bills.

Meanwhile the energy bill relief scheme is expected to halve the cost of energy bills to businesses.

How will the mini-budget affect my business?

As well as reduced National Insurance costs and help with energy bills, businesses saw next year’s planned rise in Corporation Tax to 25% cancelled, meaning the rate will remain at 19%.

There was also a promise to simplify IR35 and the rules relating to off-payroll workers, and a permanent increase in the annual investment allowance – which allows full tax relief for expenditure on qualifying plant and machinery – to £1 million.

Support for new and start up companies came in the form of a rise in the amount of funds available through the Seed Enterprise Investment Scheme (SEIS) to £250,000. The age and gross asset limits for companies to be eligible for the scheme are also being increased.

Discussions are also under way around the introduction of so-called investment zones in 38 areas in England, where businesses could benefit from targeted tax cuts and more generous planning rules.

» MORE: Small and start up business grants

Image source: Getty Images

About the author:

Tim draws on 20 years’ experience at Moneyfacts, Virgin Money and Future to pen articles that always put consumers’ interests first. He has particular expertise in mortgages, pensions and savings. Read more

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