Top 45% rate of income tax will remain in place, as Government U-turns on plans to scrap it
The 45% top rate of income tax will NOT be scrapped from April 2023, Chancellor Kwasi Kwarteng has announced today. The change means those earning above £150,000 will continue to pay a higher marginal rate of tax, as they do now.
The Chancellor first announced the 45% tax rate would be scrapped as part of a range of measures in his mini-budget, which took place just over a week ago. However, the measures spooked the money markets and contributed to significant turmoil within the mortgage sector – see our Mortgage rates story for more on this.
In a statement posted on Twitter confirming the U-turn, the Chancellor said the abolition of the 45p tax rate had "become a distraction" from the Government's overriding mission.
Basic rate of income tax to be cut from 20% to 19%
As part of the mini-budget, the Chancellor had also announced a cut to the basic rate of income tax from 20% to 19%, starting in April 2023. For most in England, Northern Ireland and Wales, this basic rate is payable on earnings of over £12,570 to £50,270 (Scotland has slightly different rates).
Other key announcements from the mini-budget
A number of other measures were also confirmed, including the following:
- The removal of stamp duty on the first £250,000 of a property (doubled from £125,000). The Treasury said this means 200,000 more people every year will be able to buy a home without paying any stamp duty at all. And first-time buyers will now pay no stamp duty on up to £425,000 (up from £300,000). See our Stamp duty shake-up MSE News story for the full details.
- National insurance rates will be cut from 6 November. The 1.25 percentage point rise in national insurance contributions (NICs), which took effect earlier this year, will be reversed on 6 November 2022. The change will benefit almost 28 million working people. See our full National insurance rise reversed story for more info.
- Universal credit rules are changing for those on low incomes. From next year, more than 100,000 people claiming universal credit will be asked to "take active steps" to increase the hours they work or find better paid jobs – or face having their benefits reduced. See our Universal credit rule changes story.
- Off-payroll working reforms will be repealed. The 2017 and 2021 reforms to the off-payroll working rules (also known as IR35) will be repealed from 6 April 2023. From this date, workers across the UK providing their services via an intermediary, such as a personal service company, will once again be responsible for determining their employment status and paying the appropriate amount of tax and national insurance contributions.
The Chancellor also announced a suite of tax cuts for business, including cancelling the planned rise in corporation tax, freezing alcohol duty for another year and extending the tax relief for investments in plants and machinery.