The new tax year began on April 6th. The outlook for the 2023/24 tax year might be looking better than many observers thought even a few months ago with less talk of recession, but inflation is still running high and interest rates may be hiked still further to try and get it under control.
And your tax burden could be increased – unless you make full use of the new set of tax allowances the new year brings.
If you are to enjoy a happy new tax year, you need to understand your tax liabilities, and the allowances that you can use to reduce them. That might require some expert advice.
Income tax has increased for the highest earners, because the threshold for additional rate tax has been reduced from £150,000 to £125,140.
The income tax rates for 2023/24 are:
- Basic tax rate 20%: £12,570 to £37,700
- Higher 40%: tax rate from £37,701 to £125,140
- Additional 45% tax rate above £125,140
The income tax Personal Allowance, below which no tax is paid, remains at £12,570, but for those earning over £100,000 it starts to taper off. For every £2 that you earn above £100,000, the Personal Allowance reduces by £1 and if you earn £125,140 or more, your personal tax allowance is zero.
What can you do to reduce your income tax? One answer could be salary sacrifice – which can often be arranged by paying more into your company pension each month, reducing your take home pay to avoid a higher rate. With some careful calculation many people can reduce the amount of tax they pay, some can actually increase their salaries, and everyone can boost their pension prospects.
A call to us at Continuum can help explain the potential of salary sacrifice.
Dividend income tax
Changes to dividend tax thresholds are being cut – meaning that you will pay more tax on income from your investments.
The Dividend Allowance for the 2023/24 tax year is £1,000, half of what it was in 2022/23, and it is set to fall further to £500 in 2024/25.
Dividends received above this allowance are taxed according to which rate of income tax you pay.
- Basic rate taxpayers 8.75%
- Higher rate taxpayers 33.75%
- Additional rate taxpayers 39.35%
Dividends from shareholdings inside an ISA are not taxable. Call us at Continuum to see if making the most of an ISA could reduce your dividend tax liability.
Basic-rate taxpayers get a personal savings allowance letting them earn the first £1,000 of income from savings free from income tax. Higher-rate taxpayers have a £500 allowance, and additional-rate taxpayers have no allowance at all.
For lower earners, there is a starter rate for savings of up to £5,000 a year on which no tax is payable if other income is less than £17,570 that tax year. Every £1 of other income above the Personal Allowance reduces the starting rate ‘band’ by £1.
Interest from sources that are already tax free, such as assets held in ISAs does not count towards the allowance – again, a call to Continuum could help you see if an ISA could let you keep more of your money out of reach of the taxman.
Investments in an ISA are sheltered from capital gains tax and income tax. By investing early in the tax year you have up to a year’s worth of extra income and growth potential – though remember your investment could fall over this period rather than rise
Capital Gains Tax allowance
The capital gains tax annual exempt amount is the maximum profit you can make on selling investment assets without paying capital gains tax.
The allowance is £6,000 for the 2023/24 tax year, down from £12,300 in 2022/23.
The rates payable on Capital Gains Tax are 10% for basic rate taxpayers and 20% for those on higher rate, but for residential property other than your own home the rates are 18% and 28% respectively.
CGT can be complicated. A call to Continuum could provide you with some expert advice.
Following the Spring Budget, the maximum that can be contributed to your pensions – the ‘annual allowance’ – is £60,000 in 2023/24, an increase from the previous £40,000 limit. Income tax relief on personal contributions is also limited to 100% of your relevant UK earnings for the tax year.
The cap on the total value of your pensions from which you can draw benefits without triggering a tax charge (known as the Lifetime Allowance) is being abolished following a surprise move in the recent Spring Budget. Anything over the cap (£1,073,100 for the 2022/23 tax year) is taxed at much higher rate, 55% for lump sum withdrawals. The charge will be abolished from April 2023.
Your pension could have a much larger role to play in your financial planning. Call us at Continuum to see how it might help you.
Whatever your financial position, the chances are that we can help you improve it. At Continuum we can look at your tax burden, and at all the ways that could help you pay a little less. To make it a happy new tax year, call us today.
The information contained in this article is based Continuum’s understanding of HMRC taxation rates for tax year 2023/24 and does not constitute financial advice or a recommendation to suitable tax mitigation strategy. You should seek advice from a qualified tax professional regarding your own circumstances before embarking on any course of action.
The Financial Conduct Authority does not regulate taxation advice.
The levels and bases of taxation are subject to individual circumstances.
The value of an investment can go down as well as up, capital is at risk.