Autumn Statement 2022 – threshold freezes

The Chancellor’s 2022 Autumn Statement focused on 'stability, growth, and public services'. To help repair the public finances, the government announced that many tax thresholds, including the personal allowance and the higher rate threshold, will be frozen until 2028.

While not a direct tax increase, these freezes mean that as incomes rise with inflation, more people will be pulled into higher tax brackets—a phenomenon known as fiscal drag. Planning for this long-term tax environment is now essential.

The impact of fiscal drag

Fiscal drag is a powerful tool for raising tax revenue without generating the negative headlines associated with increasing tax rates. By freezing the personal allowance at £12,570 and the higher rate threshold at £50,270, any pay rise an employee receives to keep up with inflation will result in a larger proportion of their income being taxed, and potentially taxed at a higher rate.

Dividend and Capital Gains cuts

Alongside the threshold freezes, the Chancellor also announced significant cuts to the Dividend Allowance and the Capital Gains Tax (CGT) annual exempt amount. The Dividend Allowance will fall from £2,000 to £1,000 in April 2023, and then to £500 in 2024. The CGT allowance will fall from £12,300 to £6,000, and then to £3,000. These changes target investors and business owners who extract profits via dividends.

R&D tax relief changes

The Statement also included changes to Research and Development (R&D) tax reliefs. The deduction rate for the SME scheme will be reduced, while the rate for the RDEC scheme (used by larger companies) will be increased. This rebalancing is intended to tackle perceived abuse in the SME scheme and ensure that taxpayer money is effectively stimulating genuine innovation.