Ahead of The 2023 Spring Budget

Now that the dust has settled from the busy January tax deadline, it’s a good time to look forward to the changes on the horizon from April 2023.  You will probably remember that there were lots of announcements during the short-lived period with Liz Truss in charge and that many of these were then reversed, with Jeremy Hunt then making further changes.

 

There are some important changes in allowances, particularly with regards to Capital Gains Tax, so you may want to look at planning the timing of disposals of assets, if there are any already in the pipeline, to make use of the current level of tax-free allowance.

 

Income tax rates and allowances

The freeze on the personal allowance, as well as the basic and higher-rate income tax thresholds will be extended to April 2028, previously there were plans to lift this freeze in 2025.

 

While this freeze may not look like a tax rise on the face of it, having thresholds that don’t rise in line with salaries means you’ll still end up paying more tax on your income and this is particularly the case if you end up in a higher tax band as a result.

 

The biggest change announced in the Autumn Statement was the reduction of the additional-rate income tax threshold, dropping from £150,000 to £125,140 from 6 April 2023. So taxpayers with income above the new threshold of £125,140 will be paying 45% tax on that income over the limit.

The table below shows income tax rates and thresholds for 2023-24, compared to 2022-23.

2022-23 2023-24
Tax band Income Tax rate Income Tax rate
Personal allowance Up to £12,570 0% Up to £12,570 0%
Basic rate £12,570 – £50,271 20% £12,570 – £50,271 20%
Higher rate £50,271 – £150,000 40% £50,271 – £125,140 40%
Additional rate Over £150,000 45% Over £125,140 45%

 

One of the rumours circulating around is tax relief for over 50’s as an incentive to go back to work, if this is going to happen it is likely to take place in the form of lifting the tax free allowance for over 50s so less of their income will be taxed. Let’s watch that space.

 

National Insurance – no further changes

There were a lot of changes to National Insurance in 2022-23. First, on 6 April 2022, rates went up by 1.25 percentage points, as part of the government’s plan to pay for health and social care.  However, this levy was then abolished and since 6 November, the rate employees pay on earnings between £12,570 and £50,270 therefore dropped back down to 12%, from 13.25%. Those with earnings above £50,270 now pay 2%, down from 3.25%.

 

After this rollercoaster, no further changes are expected for 2023-24 (but we’ll see….).

 

Inheritance tax threshold frozen

Another threshold to be frozen is for inheritance tax. IHT is charged at 40% on assets or money you leave when you die.

 

The ‘nil-rate band’, which is the amount that can be passed on before IHT is due, will remain at £325,000 until April 2028.  The allowance hasn’t changed since 2010-11.

 

Similarly, the residence nil-rate band – which can be applied if your home is being left to direct descendants – will remain at £175,000.

 

Similar to the freeze on other allowances, by keeping the nil-rate band at a level fixed years ago, rather than rising in line with price rises, more people’s estates will be dragged above the tax threshold.

 

We are having many discussions with clients about their estate and potential Inheritance Tax (and what to do about it). If you want to know more, contact Yuval or Alice to find out.

 

Dividend tax-free allowance cuts

From 6 April 2023, the dividend allowance will be cut from £2,000 to £1,000. From April 2024, it will be reduced to £500.

The rates of dividend tax will remain the same, following the increases from April 2022:

Income tax band Dividend tax rate 2023-24
Basic rate 8.75%
Higher rate 33.75%
Additional rate 39.35%

 

Capital gains tax

Capital gains tax (CGT) is charged on the profits you make from selling an asset, such as a second property or valuable possession.

 

The tax-free allowance is £12,300 for 2022-23 – this is on top of your personal allowance for income.  From April 2023 this will be significantly cut to £6,000.  From April 2024, it will be reduced again to just £3,000.

 

The CGT rates that apply after the tax-free allowance will remain the same, and depend on whether you’re a basic-rate or higher-rate taxpayer:

 

Tax band Tax rate for residential property sale Tax rate for other asset sale
Basic-rate 18% 10%
Higher-rate 28% 20%

 

 

Corporation tax rate

From 1 April 2023, the main rate of corporation tax will increase to 25% for profits in excess of £250,000. From the same date, a ‘small profits rate’ of 19% will apply to profits up to £50,000.

 

For businesses with profits between £50,000 and £250,000, tax will be charged at the main rate, with some relief which will provide a gradual increase in the effective corporation tax rate for the profits between the two thresholds.

 

Don’t forget that if you have more than one company, you will reach the higher rate of corporation tax sooner.

 

The ‘super deduction’ for capital allowances ends in March 2023 so we encourage all business owners to plan their asset purchases as soon as possible and if needed – buy the computer, van or time machine that you need in order to get 130% tax relief by 31 March 2023.

 

Support for energy bills

The so called “cap” of £2,500 per household which is currently in place will increase from 1st April 2023 to £3,000. The government is under significant pressure to review this in order to support households with low income.

 

Planning to retire?

Don’t forget that the current retirement age of 66 is going to increase to 67 by 2028 and there are suggestions that the chancellor may bring forward the increased retirement age of 68 by a few years… It is never too early to save up for a pension.  Come in and have a chat about that if you are concerned about your retirement pot.

 

Business Rates

Lastly, we remind business owners to check their new business rates which will increase from April 2023. We have witnessed some significant changes there so make sure you are informed. Some transitional relief is available to small businesses (applied automatically) to make the change easier on the profits.

 

We hope you enjoyed the light read. As always – please get in touch if you have any questions.

 

Artema

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