Autumn Budget 2025: Martin Lewis' instant reaction and analysis

monkey-fingers

jgh said:

monkey-fingers said:

mark_cycling00 said:

The 3p a mile electric car driving tax is going to increase every year from now isn't it. 

Wish I hadn't bought the stupid thing now.

£1000 to install the charger, 80p per kWh to charge at a public charger and much higher purchase price than a petrol car. This morning was -3degrees and the range had almost halved due to the cold. 

Yes you can get 5hrs cheap rate (domestic ) electricity overnight but you pay more per kwh for the other 19hrs. 

I can see them becoming much more unpopular over time 

If it makes you feel better, I fully expect a pence per mile to hit all cars before this kicks in.

I called it out years ago, but the Tories kicked the can down the road.

I'm already paying about 24p per mile taxes for a petrol car. EV drivers are getting off lightly.

You're not paying 24p per mile taxes. Lorry drivers barely pay that and they only get 10mpg.
You're almost certainly paying between 5p and 8p per mile in duty.

And you'll be taxed off the road in the next 10 years - there's a law saying so!

poseidon1

Sachakins said:

Given a definition of income being money received for work and services you provide. What is the legality in this budget to charge an income tax at varying levels fir an income received.
I refer to the change in income tax to 22% for income from property, ie rental income, with the current income tax at 20% for basic rate tax payers.

Could there be a legal challenge to this, as income earned, regardless of source is still just income. So is the Chancellor breaking the law by differentiating the rate of tax for say a basic rate tax payers whose income tax is 20%, yet the income from property is 22%.
Income is income, regardless of source, so income tax is by definition the tax on earned income.

Therefore a separate rate due to its sources must be illegal.

Also as an aside, labour pledge not to raise income tax, but this is a rise in income tax. So breaking another manifesto pledge to not raise income tax.

This alone should allow the public to request a new election as this government, by it's actions has broken the manifesto it pledged and was elected on by the public.

Given this rise in income tax now dictates they lied in order to be voted in, surely means that they should forfeit government and call a fresh general election immediately.

Just a thought gor you to ponder?

I assume you are way to young to have awareness or knowledge of the investment income surcharge system that exsisted back in the 1970s.

That surcharge together with  high rates of tax on earnings meant that there was a marginal rate of 93% on many very high earners, so much so it prompted the likes of  certain Rolling Stones members  to become permanent tax exiles. Indeed even 'plebs' like myself who were earning the lofty sum of £2,100 per year in 1976 faced a basic rate of tax at 35%.

Governments have unfettered sovereignty to tax different sources of income and capital gains in whatever way they think fit. So nothing to 'ponder' in this regard.

Grumpy_chap

kimwp said:

monkey-fingers said:

Grumpy_chap said:

kimwp said:

dividend tax to still be so low compared to income tax. 

Remember that the dividend tax is paid on top of the corporation tax already paid - typically 20%.

I think people don't realise this.

The Government will be taking 46% of my total income from me come the next tax year.

My contractor rate isn't extraordinary (my deal is probably similar to an MPs if we include pension contributions)
People think that because our day rate tops us out over £100k we're absolutely minted.

We really aren't. We pay more tax than anyone.

I'll go back into a permanent role. My take home will be slightly less, but then I'll get job security, holidays, sick leave and all the other perks that come with not being treated like a commodity.

I definitely didn't. I was working on the basis of dividends from shares (my personal experience, made £18 so far), and a friend who owns a company saying that above the personal allowance she draws dividends instead of income to minimise the tax. she didn't mention corporation tax.

Let's consider your £18 dividend received from a listed company.  (Assumptions about standard rates applicable as there are variances that add complexity.)
The company sells goods and services and generates sales revenue.  
That sales revenue pays for all the costs of delivering the goods and services and then makes a profit.
The profit is subject to corporation tax at 25% (assuming the profits above £250k).
So, for the company to pay you £18, the company needed a profit of £24.
You then pay dividend tax which is zero as you are in the dividend allowance of £500.


Now, let's consider your Director friend with their own Ltd Co.  
Maybe they have a revenue of £75k. "A" 
Assume the Ltd Co makes less than £50k profit, so the corporation tax rate is 19%.
They probably draw the first £12.5k as salary.  No income tax arising but there is an NI liability (employer's plus employee's) on that amount.
The salary (and employer's NI) is all part of the operating cost of the Ltd Co.  Along with costs of premises, materials, travel etc.
Maybe all the costs come to £35k.  "B"
So that means there is a profit of £40k.   "A" - "B"
That profit is subject to corporation tax at 19%, so £7.6k.
After that tax is paid, there is £32.4k that can be drawn as dividend.
The first £500 is the dividend allowance so no tax.  £31.9k remaining.
Beyond that, for a basic rate tax payer, the dividend received is subject to dividend tax at 8.75% on the £31.9k.
Tax arising £2.8k
Net dividend received £29.1k from the Ltd Co generating a profit of £40k.

Had the same £40k been paid as salary, there would have been no corporation tax and no dividend tax.
The £40k would be the gross cost, so included employer's NI at 15% (£5k) so an equivalent salary of £35k.
Employee's NI on £35k at 8% is £2.8k.
Income tax on £35k at basic rate (20%) is £7k.
Net income received £25.2k from the Ltd Co generating a (now no longer profit) of £40k.
£3.9k less than the dividend route.

The above has assumptions and simple rounding.  Other tax rates are available.
Your friend is correct that the low salary and dividend does reduce the tax liability but it is not by an enormous amount.
It is certainly not 20% versus 8.75%.

With the change just announced in the Budget, that difference will be reduced by a further £700 if I have got my understanding and maths correct.

If the friend's company made more profit than £50k, the corporation tax rate starts to increase which would further narrow the difference between employee PAYE and Ltd Co Director.

Hope that helps.

eskbanker

kimwp said:

jgh said:

How will the different tax rates for work vs rent work? If I have 9000 work income and 3000 rental income, that's 12000 so under the taxable allowance? What if I have 10000 work income and 3000 rental income, that takes me to 13,000 so over the 12570 allowance. How is the 430 residual taxed? At the moment it's simply 430 * 20%. Will it be split up in proportion to the source, so (3000/13000)*430 at 22% plus (10000/13000)*430 at 20%?

I think you can ask HMRC to add your income in different ways for tax efficiency. So I guess in that case, you would ask for the rental income to be the first in the calc, then it would be the work income that would be over the allowance.

The ordering will be adjusted as part of the budget changes:

4.117 Ordering of income tax reliefs and allowances – The government is changing income tax rules so that reliefs and allowances deductible at steps 2 and 3 of the income tax calculation will only be applied to property, savings and dividend income after they have been applied to other sources of income. This will be legislated for in Finance Bill 2025-26 and take effect from 6 April 2027. 

kimwp

Grumpy_chap said:

kimwp said:

monkey-fingers said:

Grumpy_chap said:

kimwp said:

dividend tax to still be so low compared to income tax. 

Remember that the dividend tax is paid on top of the corporation tax already paid - typically 20%.

I think people don't realise this.

The Government will be taking 46% of my total income from me come the next tax year.

My contractor rate isn't extraordinary (my deal is probably similar to an MPs if we include pension contributions)
People think that because our day rate tops us out over £100k we're absolutely minted.

We really aren't. We pay more tax than anyone.

I'll go back into a permanent role. My take home will be slightly less, but then I'll get job security, holidays, sick leave and all the other perks that come with not being treated like a commodity.

I definitely didn't. I was working on the basis of dividends from shares (my personal experience, made £18 so far), and a friend who owns a company saying that above the personal allowance she draws dividends instead of income to minimise the tax. she didn't mention corporation tax.

Let's consider your £18 dividend received from a listed company.  (Assumptions about standard rates applicable as there are variances that add complexity.)
The company sells goods and services and generates sales revenue.  
That sales revenue pays for all the costs of delivering the goods and services and then makes a profit.
The profit is subject to corporation tax at 25% (assuming the profits above £250k).
So, for the company to pay you £18, the company needed a profit of £24.
You then pay dividend tax which is zero as you are in the dividend allowance of £500.


Now, let's consider your Director friend with their own Ltd Co.  
Maybe they have a revenue of £75k. "A" 
Assume the Ltd Co makes less than £50k profit, so the corporation tax rate is 19%.
They probably draw the first £12.5k as salary.  No income tax arising but there is an NI liability (employer's plus employee's) on that amount.
The salary (and employer's NI) is all part of the operating cost of the Ltd Co.  Along with costs of premises, materials, travel etc.
Maybe all the costs come to £35k.  "B"
So that means there is a profit of £40k.   "A" - "B"
That profit is subject to corporation tax at 19%, so £7.6k.
After that tax is paid, there is £32.4k that can be drawn as dividend.
The first £500 is the dividend allowance so no tax.  £31.9k remaining.
Beyond that, for a basic rate tax payer, the dividend received is subject to dividend tax at 8.75% on the £31.9k.
Tax arising £2.8k
Net dividend received £29.1k from the Ltd Co generating a profit of £40k.

Had the same £40k been paid as salary, there would have been no corporation tax and no dividend tax.
The £40k would be the gross cost, so included employer's NI at 15% (£5k) so an equivalent salary of £35k.
Employee's NI on £35k at 8% is £2.8k.
Income tax on £35k at basic rate (20%) is £7k.
Net income received £25.2k from the Ltd Co generating a (now no longer profit) of £40k.
£3.9k less than the dividend route.

The above has assumptions and simple rounding.  Other tax rates are available.
Your friend is correct that the low salary and dividend does reduce the tax liability but it is not by an enormous amount.
It is certainly not 20% versus 8.75%.

With the change just announced in the Budget, that difference will be reduced by a further £700 if I have got my understanding and maths correct.

If the friend's company made more profit than £50k, the corporation tax rate starts to increase which would further narrow the difference between employee PAYE and Ltd Co Director.

Hope that helps.

Thank you, I was wondering how NI was calculated.

beatthebookienet

Does anyone know if buying unpaid leave or cycle to work counts towards the £2k salary sacrifice threshold before NI kicks in, or is it purely for AVC contributions?

eskbanker

beatthebookienet said:

Does anyone know if buying unpaid leave or cycle to work counts towards the £2k salary sacrifice threshold before NI kicks in, or is it purely for AVC contributions?

The change you're referring to relates specifically to pension contributions.

Grumpy_chap

DRS1 said:

Vitor said:

The 'mansion tax' is just another kicking for pensioners. And it's regressive.

It is interesting that the mansion tax will be on the owner not the occupier.  Yet it will be collected alongside council tax which is collected from the occupier.  I bet that was dreamed up by an MP renting a "mansion" in Westminster.

I was prompted by this comment because of the weekly news e-mail from the Local Authority mentioning the Council Tax Surcharge to be collected with Council Tax and their mention of owners.

Do we know that this will be a liability for the property owner, or will the liability fall to the same person responsible for CT?  Is "owner" being used in a colloquial manner but actually really means "occupier" or "CT payer"? 

Our LA indicated that they will be required to collect the surcharge along with CT and then pass that surcharge amount on to central Government.  It will add complexity and cost for the LA if they need to raise one CT account for the occupier and another for the owner of the property.

eskbanker

Grumpy_chap said:
Do we know that this will be a liability for the property owner, or will the liability fall to the same person responsible for CT?  Is "owner" being used in a colloquial manner but actually really means "occupier" or "CT payer"? 

Pretty unequivocal in the budget document:

2.41 At the Budget, the government is asking those owning the highest-value properties to contribute more. The government is introducing a High Value Council Tax Surcharge (HVCTS) in England for residential properties worth £2 million or more, from April 2028. This charge will be based on updated valuations to identify properties above the threshold and will be in addition to existing Council Tax. Fewer than 1% of properties will be in scope of HVCTS.112 New charges start at £2,500 per year, rising to £7,500 per year for properties valued above £5 million, and will be levied on property owners rather than occupiers. Local authorities will collect this revenue on behalf of central government and will be fully compensated for the additional costs of administering this new tax. Revenue will be used to support funding for local services, with further consideration through the next spending review in 2027. The government will consult on detailed implementation of the HVCTS in the new year, including to determine who might need additional support to pay the charge and how to deliver it.