- Shepherd Partnership
Tax Cut U-turn
Despite the PM insisting (only yesterday) that there would be no abandonment of policy, this morning Kwasi Kwarteng has said the government is scrapping its plan to abolish the top rate of income tax for the highest earners.
The U-turn comes at the start of the Conservative Party conference, and after many voiced their opposition to the plan in the 10 days since the ‘mini-budget'. In his statement Kwasi Kwarteng said "it is clear that the abolition of the 45p tax rate has become a distraction", adding "we get it, and we have listened".
The announcement means that the 45% top rate of tax, which applies on earnings above £150,000, will not be scrapped in April 2023. Our understanding is that affected taxpayers will also not benefit from the £500 Savings Allowance.
Presumably taxpayers with income over £125,140 will continue to receive no personal allowance (an aspect of the current system which results in the '60% tax trap' - an effective 60% tax rate on income between £100,000 and £125,140, before reducing back to 40% for income between £125,140 and £150,000).
All other changes from the mini-budget remain (for now).
Please don't hesitate to contact us if you have any questions or concerns.