Welcome To the New Tax Year: Everything You Need To Know For 2023/24

As another tax year comes to an end, it’s crucial to understand the changes that the new tax year will bring. Even small changes can significantly impact an individual’s income, so being aware of these alterations is essential to plan for the year ahead.

Several issues continue to affect the economy and various industries, so comprehending how these changes might impact you is crucial. Keep reading to find out what’s changed and what might affect you.

Income Tax Rates and Thresholds For the UK and Scotland

For the past few years, tax rates and thresholds for Income Tax have differed between Scotland and the rest of the UK. Consequently, the tax you pay on savings and non-savings income depends on where you live within the UK.

Examples of non-savings and savings income include salaries, pension income, income from land and property, sole trader income, and interest.

The tax rates and thresholds on this income for the UK are:

BandThresholdTax Rate
Personal Allowance£12,5700%
Basic Rate£12,571 – £50,27020%
Higher Rate£50,271 – £125,14040%
Additional RateOver £125,14045%

Note: If your total income exceeds £100,000 in a year, your personal allowance will be reduced by £1 for every £2 you earn over £100,000. The Allowance will reduce to £0 if your earnings reach £125,140. This reduction of your personal allowance will impact all of the thresholds accordingly, except for the £125,140 additional rate band.

For example, if you earn £125,140 in the tax year, you will have no Personal Allowance, you will pay 20% on your first £37,700, and then 40% on everything else from £37,701 to £125,140.

The tax rates and thresholds for Scotland are different:

BandThresholdTax Rate
Personal Allowance£12,5700%
Starter Rate£12,571 – £14,73219%
Basic Rate£14,668 – £25,68820%
Intermediate Rate£25,297 – £43,66221%
Higher Rate£43,663 – £125,14042%
Top RateOver £125,14047%

Note: As with the rest of the UK, once your total income exceeds £100,000 in the year, your personal allowance will be reduced by £1 for every £2 you earn over £100,000. This is in line with the rest of the UK, meaning the other thresholds are impacted accordingly as a result.

Some noteworthy changes include the increase from 41% to 42% and from 46% to 47% on the Scottish Higher Rate and Top Rate bands, respectively, and the reduction of the Additional Rate/Top Rate threshold from £150,000 to £125,140.

Dividend Tax Rates and Thresholds

Starting from the 2023/24 tax year, there will be a change in dividend tax rates, with the tax-free dividend allowance reduced from £2,000 to £1,000.

The tax rates on dividends from April 2023 will be as follows:

  • Basic rate dividends: 8.75%
  • Higher rate dividends: 33.75%
  • Additional rate dividends: 39.35%

The new dividend allowance will apply to all dividends declared on or after 6th April 2023. As part of contractor tax planning, consider taking any dividends before the rate change or deferring them as needed.

Each contractor’s ideal approach will differ, so contact your dedicated accounts team for advice.

It’s recommended that people who receive dividend income track their earnings and any subsequent tax due at the end of the year. If you have an accountant, they can help estimate your tax liability.

Tax-Efficient Salary

For most contractors, the most tax-efficient salary will be £240 per week or £1,050 per month.

Feel free to contact Countplus Accounting for tailored advice and guidance for the current and upcoming tax year.

Capital Gains Tax

Do you plan to sell any chargeable assets during the year? For things such as shares or a second home/rental property, you may incur a capital gain if the profit from the sale exceeds the Capital Gains Allowance. This allowance is being reduced from £12,300 to £6,000 from 6th April 2023. Therefore, if you plan on selling any assets, you can take advantage of the current allowance if you sell the asset before the new tax year begins.

If your profit exceeds the Capital Gains Allowance, the tax rates remain unchanged at 10% at the Basic Rate band for non-residential property. It’s 18% for residential property and 20% above the Basic Rate band for non-residential property or 28% for residential property.

Calculating Profits

When calculating your profit on a capital disposal, check if there are any costs you can claim as an allowable expense to reduce that gain. For example, enhancing a property by adding a conservatory or extension.

Some capital disposals may qualify for Business Asset Disposal Relief. Gains that qualify for this are taxed at a flat rate of 10% regardless of the tax band, with a lifetime limit of £1 million that an individual can claim this relief on. Any qualifying gains after the first million will be taxed at the standard rates of capital gains tax.

Pensions and Savings

Contributing to a pension can provide tax relief. Previously, the benefits that could be built up were limited by the lifetime allowance; however, for the tax year 2023/24 onwards, this limit has been abolished. This change allows some individuals to build up even more into a pension fund while enjoying full tax benefits. However, there is a lifetime limit on how much you can contribute to a pension and later withdraw while benefiting from this.

The lifetime limit used to increase each year with inflation, but, similar to the Personal Allowance, this limit remains frozen at £1,073,100 until 2026. This likely will not impact most people, but those who are affected face a 55% tax charge if they withdraw any income above this limit as a lump sum over the next five years or 25% if they take the money as income.

For the 2023/24 tax year onwards, the limit a person can contribute to a pension pot while claiming tax relief is capped at a maximum of £640,000, increased from the previous cap of £40,000. For higher-earning individuals, this limit may be lower, and for individuals earning less than £640,000, this limit will also be lower. In such instances, it’s advisable to seek professional advice.

Inheritance tax

Inheritance tax remains mostly unchanged for the 2023/24 tax year, with estates worth £325,000 or less remaining tax-free and any amount exceeding this taxed at 40%. This threshold is also frozen at £325,000 until 2026. There is also the Residence Nil-Rate band, allowing an estate that includes the family home to benefit from up to an additional £175,000 when passed on to direct descendants. Any further increases to this allowance will be determined by the rate of inflation (CPI).

As with many other allowances, the inheritance tax thresholds will remain unchanged until 2026.

When a married person dies and leaves their estate to their spouse, the surviving spouse may inherit the tax-free allowance from their deceased partner, effectively doubling the allowance they can pass on. For example, the £325,000 tax-free allowance would become £650,000. This impacts the family home allowance as well, doubling it from £175,000 to £350,000.

Marriage allowance

For married couples or civil partners where one person earns less than their personal allowance and the other’s earnings fall within the Basic Rate band, claiming marriage allowance may be advantageous. This allowance allows the lower earner to transfer 10% of their personal allowance to their spouse/partner, enabling them to earn a slightly higher amount before paying tax.

For 2023/24, the transferable amount would be £1,260, increasing the other’s personal allowance from £12,570 to £13,830. When both individuals’ income is at or exceeds their personal allowance, there is no financial benefit to this allowance.

A claim for marriage allowance must be made by the person wishing to transfer part of their allowance to the other, as this would mean that their personal allowance is reduced.

As with all aspects of financial planning, we recommend speaking to a professional about your circumstances to ensure that you are making the most of your current situation and are prepared for any upcoming changes ahead.

Are You Ready For the 2023/24 Tax Year?

As we welcome the new tax year, it’s essential to be aware of the changes that may impact your finances. By understanding the different tax rates, allowances, and thresholds, you can make informed decisions to optimize your financial situation.

If you need advice or have any queries, don’t hesitate to contact Countplus today. We can help you with everything related to the smooth running of your business, and just recently took an experienced tax expert onto the team! Get in touch today and get the help you need!

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