New tax year checklist

At a glance

In November, Chancellor Jeremy Hunt introduced sweeping changes to tax allowances and a continued freeze on tax thresholds for basic and higher rate taxpayers.

It’s more important than ever to ensure you’re using all the allowances and exemptions you’re entitled to.

We outline the changes to Income Tax and National Insurance, dividend and savings income (frozen until 2028), personal pensions, ISAs, Inheritance Tax, Capital Gains Tax and Corporation Tax.

In his Autumn Statement last November, Jeremy Hunt warned of ‘difficult decisions’, as the government works to curb inflation, repair the economy, and steer the country through the recession. His plans included a mix of spending cuts, increased income from taxes, and significant changes impacting investors and higher rate taxpayers.

The squeeze on real incomes by rising prices is predicted to reduce our standard of living by 7 per cent in total over 2023-24 – wiping out the previous eight years’ growth.1

All of which means that using all available tax breaks while you have them will help your short and long-term financial security and wellbeing.

As the new tax year starts, here is a reminder of the main tax exemptions and allowances, and what has – or hasn’t – changed for this year.

What’s changed about Income Tax and National Insurance?

The personal allowance – the amount of income you don’t have to pay tax on – remains at £12,570. The basic rate is still 20%, and the higher-rate threshold, at which you start paying 40%, is £50,270. These will be frozen until 2028.

However, the additional-rate tax threshold, at which you pay 45%, drops to £125,140. This change does not yet apply to Scottish taxpayers.

National Insurance contributions (NICs) will be frozen until 2028. Most employees will pay National Insurance at 13.25%, taking the total tax from their salaries, including 20% basic rate, to 33.25%.

What’s changed about Dividend and savings income?

Through the Personal Savings Allowance, basic-rate taxpayers can continue to earn £1,000 interest on savings before paying tax in 2023/24. For higher-rate taxpayers, the allowance remains at £500, and for additional-rate taxpayers, it’s zero.

But there are significant changes to Dividend Tax. The dividend allowance will be cut from £2,000 to £1,000 in 2023/24, and then to £500 in April 2024. If you own shares in a company, or receive dividends from funds or investment trusts, this is likely to affect you.

Tax rates on dividends above the allowance 2023/24

Tax Band%
Basic8.75%
Higher33.75%
Additional39.35%

Because of the changes to Dividend Tax, you may want to talk over your options for making better use of the continuing tax allowances for ISAs and pensions. We’re happy to review your plans and goals with you, and help decide what’s right.

What’s changed about Personal pensions?

In his Budget on 15 March, the Chancellor announced some important changes to pensions and the tax reliefs associated with them. In general, these measures are good news if you’re saving towards retirement, or if you’re already accessing your pension pot or planning to in the near future.

The standard annual allowance for pension contributions – that is, the maximum pension contribution you can make and receive tax relief every year – will increase to £60,000 or up to 100% of relevant earnings if less, with effect from 6 April 2023. If you’re saving towards your retirement, you now have the opportunity, if financially viable, to greatly increase the amount you can pay into your pension pot each year, whilst still taking advantage of the generous tax allowances associated with pensions. 

The lifetime allowance – the most you can save in your pension pot before you do start paying tax – usually moves up in line with inflation. However, from 6 April 2023 to 5 April 2024, no one should have to pay a lifetime allowance charge which means you can carry on paying into your pension pot without worrying about receiving a tax penalty. Then from 6 April 2024, it will be completely abolished, so there will be no limit on how much you accumulate in your pension while still enjoying its tax advantages. 

This makes it even more important to save as much as you can afford in tax-efficient places such as ISAs or pensions. For many, it will make financial advice more important too.

What’s changed about ISAs?

Your tax-efficient ISA allowance is still £20,000 for 2023/24, both for Stocks & Shares ISAs and Cash ISAs.

Although interest rates have risen quite steeply in the last year, they remain significantly below inflation, eroding the real value of your savings in any Cash ISAs. Investing in Stocks and Shares ISAs still has more potential to achieve the best long-term results for ISA savers.

What about Junior ISAs?

The Junior ISA annual allowance also remains unchanged at £9,000. Alongside children’s pensions, Junior ISAs are a great way to give your children or grandchildren a financial head start. Since they can’t access the money until they’re 18, their savings have a greater chance to grow in the long-term, especially if you open a Junior Stocks and Shares ISA for them.

What’s changed about Inheritance Tax?

The Inheritance Tax (IHT) nil-rate band for 2023/24 remains at £325,000 but has been frozen until 2028. The additional residence nil-rate band, where your main residence can pass to direct descendants, is also fixed at £175,000.

What’s changed about Capital Gains Tax?

The Autumn Statement last November brought a big change to Capital Gains Tax, or CGT.

The CGT allowance, which is the amount you can make before you start paying tax, had been frozen at £12,300, but will be cut to £6,000 in 2023/24, and then to £3,000 from April 2024. You’ll probably want to discuss this further with us if you are planning to sell any valuable assets or property.  

Finally, what’s changed about Corporation Tax?

The Corporation Tax rate will rise to 25% for the year 2023/24 as planned. The rate for businesses with £50,000 profit or less will stay at 19%, and there will be a marginal taper for those with profits between £50,000 and £250,000.

This has been a challenging year on many levels, so making sure that your finances are in a good place will bring even more peace of mind. Do get in touch with us and double-check that you’re making the most of all your allowances this year.

The value of an investment with St. James’s Place will link directly to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

An investment in a Stocks & Shares ISA will not provide the same security of capital associated with a Cash ISA or a deposit with a bank or building society.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Please note that Cash ISAs are not available through St. James’s Place and although anyone can contribute to an ISA for a child only the parent/legal guardian can open the ISA for them.

Sources
1Economic and fiscal outlook, Office for Budget Responsibility, November 2022

SJP Approved 30/03/2023

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