The start of a new tax year can be daunting, as it may require you to rethink your wealth and how it’s structured to minimise your exposure to potential tax charges. With the revolving door of taxation changes in 2022, you might be wondering what the 2023/24 tax year has in store for you and your finances.
Read on to discover five important tax changes that come into effect in April 2023, the possible implications this could have for your wealth, and how a financial planner could help.
1. Dividend Tax
As an investor or a business owner, changes to the Dividend Tax allowance in 2023/24 could affect you. As from 6 April, the allowance drops to £1,000, and will then fall to £500 from April 2024.
This means that any dividends that you earn above these amounts will typically be subject to Dividend Tax at the following rates:
- 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.
Working with a financial planner could help reduce your exposure to Dividend Tax. One way they may be able to help you do this, is to put some or all of your investments into a Stocks and Shares ISA, which is not typically liable to the tax.
2. Capital Gains Tax
The Capital Gains Tax (CGT) threshold drops from £12,300 to £6,000 as from 6 April 2023. It then drops again to £3,000 in April 2024.
CGT is typically charged at between 10-28%, depending on the type of asset sold and your marginal rate of tax, which means that the lower thresholds could significantly increase your liability to CGT.
The good news is that there are ways you might be able to reduce your exposure to it, such as investing in a Stocks and Shares ISA, sharing assets with your spouse or reducing your tax band using salary sacrifice.
A financial planner can help you understand whether any of these are right for you, and options you may want to consider to reduce a potential CGT liability.
3. Income Tax
In his autumn statement of 2022, the chancellor announced that the Personal Allowance would remain frozen until April 2028. This means that the allowance, which is the amount you can earn before Income Tax is charged, stays at £12,570 until then, and the higher-rate tax threshold continues to be £50,270.
If you are expecting an increase in the amount you earn, these threshold freezes may mean you’re pushed up into the next tax band. If you’re a 20% basic-rate taxpayer, you may go up into the 40% higher-rate tax band, something the Telegraph reveals could happen to millions of UK workers.
Furthermore, if you’re a high earner, the threshold for the 45% additional-rate of Income Tax will drop from £150,000 to £125,140 as from April 2023. Furthermore, if you do earn more than the new threshold, you may also lose your Personal Allowance.
If this happens, you may be subject to an Income Tax liability that’s equivalent to 60%. According to another Telegraph article, around 2 million workers could face this possibility. As financial planners often help clients to reduce their exposure to Income Tax, speaking to one might be a very shrewd way of reducing your potential liability.
4. Annual Allowance
HM Revenue & Customs typically provides tax relief on the contributions you make to your pension scheme. This means that in the 2023/24 tax year the amount you pay into your pension is as follows:
- £80 for every £100 if you’re a basic-rate taxpayer
- £60 in every £100 if you’re a higher-rate taxpayer
- £55 in every £100 if you’re an additional-rate taxpayer.
While this is good news, the level of contributions that receive tax relief is limited to your Annual Allowance. Contributions that you make that exceed your allowance won’t usually enjoy tax relief.
The good news in 2023/24 is that the Annual Allowance has increased to £60,000 a year or the amount you earn, whichever’s the lower. This means you might be able to increase the level of your contributions and still receive tax relief, which could provide your retirement fund with a significant boost.
Furthermore, the increase means you may be able to contribute a lump sum of up to £180,000 into your pension in 2023/24, and still receive tax relief using “carry forward”. This is because carry forward allows you to use any unused amounts of your Annual Allowance from the previous three years.
If you’re a higher earner, your Annual Allowance may be slashed because of the Tapered Annual Allowance. Yet this too has increased in 2023/24, which means that high earners can now contribute up to £10,000 into their pension and receive tax relief.
Furthermore, the amount you can earn before the Tapered Annual Allowance is activated has increased from £240,000 to £260,000 in 2023/24. As the rules around the Tapered Annual Allowance and carry forward are complex, always speak to a financial planner to confirm whether you’re affected by them, and understand the options that are available to you.
5. Money Purchase Annual Allowance
If you’re working while flexibly drawing an income from a defined contribution (DC) pension scheme, otherwise known as a “money purchase” scheme, you might trigger a little-known tax trap. This is the Money Purchase Annual Allowance (MPAA), which reduces the amount of pension contributions that you make that receive tax relief.
As such, it has the potential to reduce your retirement fund’s growth potential as the government effectively contributes less into your pension scheme. There is some good news though, as the MPAA increases from £4,000 to £10,000 as from April 2023.
This means that if you trigger the MPAA, in the 2023/24 tax year you can contribute up to £10,000 and typically still receive tax relief. As the rules around the MPAA can be complex, a financial planner could confirm whether you’re liable to it, and what the options available to you are.
Get in touch
Please remember that this is not an extensive list of the tax regulation changes that come into effect on 6 April 2023, and there may be others that could affect you. If you would like to discuss ways you may be able to reduce your tax liability as much as possible, maybe through the use of your tax allowances or pension contributions, we would be happy to help.
Please contact us on hello@ardentuk.com or call 01904 655 330. As an award-winning financial advice company that was a 2022 VouchedFor Top Rated firm, you can be sure that we’re a bona fide company providing excellent advice and high-quality service.
Please note
This blog is for general information only and does not constitute advice. 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.
