6 important tax changes for 2023/24 that you need to know about

Happy woman working on calculatorAs April marks the start of a new tax year, you might be wondering what changes come into effect in 2023/24. If so, read on to discover six important tax changes that come into effect this tax -year, and how a financial planner could make sure that your wealth is as tax-efficient as possible.

1. Income Tax

In his autumn statement, the chancellor announced changes to the 45% additional-rate threshold, which could affect you if you’re a higher earner. From 6 April 2023 the threshold drops from £150,000 to £125,140.

A lesser-known consequence of moving up into the additional-rate is that you’re likely to lose your Personal Allowance. According to the Telegraph, if this happens, you could effectively end up paying 60% in Income Tax – something it reveals could happen to 2 million UK workers.

It’s not only high earners that might be facing an increase in tax, as the 2023/24 tax year sees a continued freeze on the Personal Allowance, which now remains in place until April 2028. Your Personal Allowance is the amount you can earn before Income Tax is charged, and in 2023/24 it remains at £12,570, with the higher-rate tax threshold staying at £50,270.

The freeze could result in you being pushed up into the higher-rate tax band if you receive a pay rise while the allowance remains static. The good news is that working with a financial planner could help ensure your earnings and investments are as tax-efficient as possible.

2. Dividend Tax

If you have investments or are a business owner, changes to the Dividend Tax allowance that come into effect in the 2023/24 tax year may affect you. The allowance drops to £1,000 from April 2023, then to £500 from April 2024.

As a result, any dividends that you earn that are above these amounts will typically be subject to the Dividend Tax, which in 2023/24 will be charged at:

  • 8.75% if you’re a basic-rate tax payer
  • 33.75% if you’re a higher-rate taxpayer
  • 39.35% if you’re an additional-rate taxpayer.

If the reduced Dividend Tax allowance means that you could be exposed to a greater Dividend Tax liability, a financial planner will be able to discuss ways to potentially reduce your exposure to it.

3. Capital Gains Tax

The Capital Gains Tax (CGT) threshold will drop from £12,300 to £6,000 in April 2023. It will then fall to £3,000 from April 2024.

As CGT is usually charged at between 10 and 28%, depending on the type of asset sold and your marginal rate of tax, the lower thresholds could significantly increase your liability to CGT. A financial planner could help you understand how you might be able to reduce your exposure to the tax, such as by investing in Stocks and Shares ISA or potentially sharing assets with your spouse.

4. Annual Allowance

If you have a defined contribution pension (DC), commonly known as “money purchase pension schemes”, the government rewards you for adding money to it in the form of tax relief. This means that in the 2023/24 tax year, if you’re a basic-rate taxpayer you pay just £80 for every £100 you contribute to your pension pot.

If you’re a higher-rate taxpayer it will only cost you £60, and additional-rate taxpayers may pay £55.

While you can contribute as much as you’d like into your pension, the amount that receives tax relief is limited to your Annual Allowance. As from April 2023 the Annual Allowance increases to £60,000 a year, or the amount you earn, whichever is lower.

This means that you may be able to put more into your pension pot and enjoy an additional cash uplift from the government’s tax relief. This could provide a significant boost to your retirement fund, which could mean you enjoy a better standard of living when you retire.

If you have a lump sum, such as an inheritance, you may be able to use “carry forward” to contribute more than your Annual Allowance to your pension pot and still enjoy tax relief. This is because carry forward uses unused amounts of allowance from the previous three years, potentially allowing you to contribute up to £180,000 in 2023/24 and still receive tax relief.

5. Money Purchase Annual Allowance

If the rising cost of living means that you’ve decided to work part-time after retiring, changes to a little-known tax threshold could be important for you.

It’s triggered if you decide to flexibly access your money purchase pension while still contributing to another, such as a work place pension scheme. This means that you may be liable to an Income Tax charge on contributions when under normal Annual Allowance rules you wouldn’t be.

As a result, the growth potential of your pension pot could be reduced. There is good news though, as from April 2023 the MPAA increases from £4,000 to £10,000, allowing you to potentially receive  more tax relief on your pension contributions.

This could help to give your retirement fund a boost and potentially provide a better lifestyle in retirement.

6. Tapered Annual Allowance

If you’re a high earner, the amount of pension contributions that receive tax relief could be reduced because of the Tapered Annual Allowance. The Annual Allowance is potentially reduced from £60,000 to £10,000 in the 2023/24 tax year.

The good news is that the amount at which the Tapered Annual Allowance comes into effect has been increased from £240,000 to £260,000 from April 2023. As the rules around the Tapered Annual Allowance are complex, a financial planner will be able to confirm whether it might affect you.

Get in touch

If you would like to discuss ways to ensure your earnings and wider wealth are as tax-efficient as possible, we’d be very happy to help. This could be by boosting your pension contributions, placing your money in certain types of investments or using salary sacrifice, if these are appropriate for you.

Please contact us on info@janesmithfinancial.com or call 01234 713131.

Please note

This blog is for general information only and does not constitute advice. It should not be seen as a substitute for financial advice as everyone’s situation is different.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

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