Personal Finance | 27 February 2023

New tax year, new tax changes

As the new tax year approaches, you might want to know about possible changes to what you’ll pay in tax. 

 

In his Autumn Statement last November, Chancellor Jeremy Hunt announced a series of tax freezes and adjustments.

While there are no personal tax rises, the fact that some rates have been frozen following a year of rising prices means we’re likely see more people fall into the higher rate category and find themselves paying more tax as wages increase.

Here are some key points we think are worth knowing.

  • New additional rate threshold

    One of the biggest changes was the drop in the additional rate tax threshold that will be taking effect from April 2023.

    • In England, Wales and Northern Ireland, the higher rate tax band will change from £50,271-£150,000 to £50,271-£125,140. Anything over that in the additional rate will be taxed 45%. The threshold for the personal allowance and basic rate are unchanged, frozen until 2028.
    • In Scotland, the higher rate tax band will change from £43,662 - £150,000 to £43,662- £125,140 along with an increased tax rate from 41% to 42%. Anything over that in the additional rate will be taxed at an increased rate of 47%, up from 46%.  
      2022 - 2023 2023 - 2024
      Tax band Income Tax rate Income Tax rate
    England, Wales and Northern Ireland Higher rate £50,271 - £150,000 40% £50,271 - £125,140 40%
    Additional rate Over £150,000 45% Over £125,140 45%
    Scotland Higher rate £43,662 - £150,000 41% £43,662- £125,140 42%
    Additional rate Over £150,000 46% Over £125,140 47%

  • National insurance rate freeze

    There were several changes made to national insurance in 2022 as rates went up by 1.25% before being removed again in November. This reversal is expected to remain for this coming year, so you’ll pay 12% on any earnings between £12,570 and £50,270, and 2% on anything over that.

  • Inheritance tax band freeze

    The nil-rate band – the amount that can be left in an estate or gifted without paying any inheritance tax – is being frozen at £325,000 until 2028. Anything beyond that will be charged at 40%. Also, the residence nil-rate band, which applies when your home is left to direct descendants, will stay at £175,000.

  • Capital gains and dividend allowance cuts

    Any profits made from selling an asset, such as additional property or investments, is known as capital gains. The tax-free allowance for this in 2022-23 was £12,300 but it’s being cut to £6,000 from April 2023. And it’s expected to be cut again in April 2024, to just £3,000. The capital gains tax rates after this free allowance will remain the same depending on which tax band you fall into.

    Tax band Property tax Other asset tax
    Basic rate 18% 10%
    Higher rate 28% 20%

    Similar cuts are being made to the dividend allowances of these assets – the money paid out from shares – with the tax-free allowance being cut from £2,000 to £1,000 in April 2023, and to £500 in 2024. The income tax rates after this free allowance will remain the same depending on which tax band you fall into.

    Tax band Income tax on dividends
    Basic rate 8.75%
    Higher rate 33.75%
    Additional rate 39.35%

  • ISAs untouched

    There are no changes made to ISA allowances. So individuals still have an allowance of £20,000 to put into a stocks and shares ISA or cash ISA in a tax year. For Junior ISAs (JISAs), the allowance remains at £9,000.

    The capital gains made from ISAs aren’t subjected to capital gains tax. It’s worth remembering though that you can only contribute to one stocks and shares ISA and one cash ISA in a given tax year.

  • Council tax rise

    Some local authorities could be raising council tax by 3% in April 2023, with those qualifying for a social care precept also able to increase it by a further 2%. So some people could see their council tax bill rise by 5%.

  • Stamp duty shake up

    • In England, the changes made to stamp duty in September last year will stay in place until 2025. This means first time buyers won’t need to pay stamp duty on the first £425,000 of the property they buy, raised from £300,000. Existing homeowners won’t have to pay stamp duty on the first £250,000, up from £125,000.
    • In Scotland, stamp duty is now referred to as land and buildings transaction tax (LBTT). First time buyers won’t be subjected to LBTT on the first £175,000 of the property they buy. While existing homeowners won’t have to pay LBTT on the first £145,000 but will see that the additional dwelling supplement is raised from 4% to 6%.

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Coutts’ clients can find out more about what’s happening in the investment markets and how it impacts their investments by speaking to their private banker.

 

We're here to help, but please be aware that we cannot offer any tax advice. We recommend you contact an independent tax advisor to discuss your personal tax situation.

Tax reliefs referred to are those applying under current legislation which may change. The availability and value of any tax reliefs will depend on your individual circumstances.

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