The new tax year starts on 6 April, heralding a raft of changes that will make an early tax review of the year ahead a wise move.
There is always plenty of attention given to planning for the end of the tax year, making use of allowances that are otherwise lost at midnight on 5 April. A March Budget normally adds to the focus as speculation mounts about what might change even before the tax year ends. Much less attention is paid to planning for the start of the new tax year, but that can be just as valuable an exercise.
In 2023/24, there will be important personal tax changes – and, in the face of double-digit inflation, non-changes – taking place:
- The personal allowance and higher rate threshold will be frozen again (and will remain so until April 2028). In Scotland, the higher rate threshold will also rise by 1% to 42%.
- The income thresholds for child benefit tax (£50,000) and personal allowance taper (£100,000) will also be frozen, as they have been since they were first introduced.
- The additional/top rate threshold will be reduced from £150,000 (originally introduced at that level in 2010/11) to £125,140. At this lower figure, in theory the rate kicks in immediately until the personal allowance has been tapered away to nil. In Scotland, the top rate will also rise from 46% to 47%.
- The dividend allowance will be halved to £1,000 (and halved again in 2024/25).
- The annual exempt amount for capital gains tax will be cut from £12,300 to £6,000 (again ahead of another halving in 2024/25).
As a result, personal tax bills could increase in 2023/24, even if income does not. For example, if you are a higher rate taxpayer, the halving of the dividend allowance could cost you an extra £337.50 in tax (and £506.25 in 2024/25). Worse still, you might find that you have been ‘promoted’ from higher rate to additional/top rate. HMRC estimates that nearly a quarter of a million taxpayers will fall into this unhappy category.
There are a variety of actions to ease the increasing tax burden if taken early in the tax year. For example, investing in an ISA in April 2023 rather than March 2024 removes the income that would be generated from the investment from your 2023/24 tax calculation. Some other strategies are more complex, so advice is essential.
The Financial Conduct Authority does not regulate tax advice.
Tax treatment varies according to individual circumstances and is subject to change.
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