The new tax year is nearly with us. 2023/24 is not looking quite as negative as some claimed a few months ago, but prices are still growing, interest rates still rising – and some costly tax changes are planned.
If you are to face the new tax year with a smile, you need to understand the changes, the impact they will have on your financial plans, and what you can do about them.
At Continuum we have put together a tax changes checklist – with tax topics you may want to check now.
What has changed?
- Income tax, personal allowance and higher rate tax thresholds have been frozen until April 2028. This is not a change as such – but it means if your pay increases, you’ll have to pay tax on more of your income.
- The 45% income tax threshold will be lowered. This means anyone earning over £125,140 will be taxed at the 45% rate.
- Benefits will rise by 10.1% from April 2023.
- Dividend tax-free allowance will be cut from April 2023. You’ll only be able to earn £1,000 in dividends tax-free – falling to £500 in April 2024.
- Capital gains tax-free allowance will drop to £6,000 from £12,300 in April 2023 and drop again to £3,000 in April 2024.
What can you do?
You can’t escape tax, but there may be some steps you can take to minimise the impact of the changes on your income.
Check your income tax
If you reduce your taxable income to below £125,140 you avoid 45% (or additional rate) tax. Getting your income below £ 50,271 will take you out of higher rate (40%) tax and into basic rate at just 20%.
Increasing your pension contributions is one of the simplest ways to reduce your taxable income. Pay more into your work pension and you can keep tax under control and look forward to the potential of bigger pension pot. Just keep your contribution under the £40,000 annual limit.
You can also transfer income to your spouse or civil partner to make full use of their personal allowance. This stays at £12,570 in the new tax year.
Check your Capital Gains Tax
If you are planning on selling any assets, it makes sense to do so this year – and make use of an allowance of £12,300 – rather than wait until the new tax year and have just £6000 allowance.
Again, it may be possible to reduce CGT by transferring your assets to a spouse.
Check your dividend income
The fall in dividend allowance means you’ll only be able to earn £1,000 in dividends before you start paying tax on them, and this will fall to £500 in April 2024. But remember, any dividends you receive on investments held in an ISA are tax free, so the simplest way to reduce the amount of dividend tax you pay is to use your ISA allowance to the full.
Check your savings
Low interest rates have meant that few people had savings income above their personal savings allowance. This is £1,000 for a basic rate taxpayer and £500 for anyone who pays higher rate tax. Interest Rates have been going up – it might be time to look at a Cash ISA to avoid the taxman taking a share of your savings.
Check how we can help
Managing tax is inevitably difficult, thanks to the maze of legislation that has grown over the years, and the latest round of changes.
At Continuum we have the expertise you need to help you deal with those change and minimise the impact on your financial plans.
Calling us now, before the end of the tax year could be a very wise move.
The information contained in this article is based on the opinion of Continuum and our understanding of current HMRC tax rates for the tax year 2023/24 and does not constitute advice on a suitable taxation strategy or investment strategy, you should seek independent financial advice before embarking on any course of action.
The Levels and basis of reliefs from taxation are subject to change and depend upon your personal circumstances.
The Financial Conduct Authority does not regulate taxation advice and deposit accounts.