As we approach the new tax year in the UK, it’s crucial to stay informed about the changes coming into effect and how they may impact your financial situation. The Money Advice Helpline is here to help you navigate these changes and provide guidance on how to manage your finances effectively. In this blog post, we will discuss some of the most significant tax changes for the 2023/2024 tax year and what they mean for everyday people in the UK.
- Personal Allowance and Tax Bands
One of the most noteworthy changes in the new tax year is the increase in the Personal Allowance. This is the amount of income an individual can earn before they start paying income tax. For the 2023/2024 tax year, the Personal Allowance will rise from £12,570 to £12,750. This slight increase means that most taxpayers will have a little extra money in their pockets.
Additionally, the basic rate and higher rate tax thresholds have also been increased. The basic rate band now extends to £52,270, up from £50,270, while the higher rate threshold is raised to £54,000 from £52,000. These changes will provide modest tax relief for those earning within these bands.
- National Insurance Contributions (NICs)
National Insurance rates have also seen a change, with a 1.25% increase across all income bands. This Health and Social Care Levy aims to provide funding for the NHS and social care system. While the increase may seem small,
it will impact both employees and employers, with the potential to affect overall take-home pay and business expenses.
For example, an employee earning £30,000 per year will see their NICs rise by approximately £225 per year. This increase may not seem significant on its own, but when combined with other tax changes and inflation, it’s essential to review your budget and plan accordingly.
- Changes to Dividend Tax Rates
The dividend tax rates for the 2023/2024 tax year have also been revised. The new rates are as follows:
- The tax-free dividend allowance remains at £2,000.
- The basic rate has increased from 7.5% to 8.75%.
- The higher rate has increased from 32.5% to 33.75%.
- The additional rate has increased from 38.1% to 39.35%.
These changes will affect shareholders who receive dividends from their investments, resulting in higher taxes on dividend income above the tax-free allowance. It’s crucial for investors to review their portfolios and investment strategies in light of these changes.
- Pensions and Lifetime Allowance
The Lifetime Allowance for pension savings has been frozen at £1,073,100 for the 2023/2024 tax year. This means that the amount you can save into your pension pot without facing additional tax charges remains unchanged. If your pension savings exceed the Lifetime Allowance, any excess amount will be subject to a tax charge of 25% if drawn as income or 55% if taken as a lump sum.
The annual pension contribution allowance also remains unchanged at £40,000, with the tapered allowance for high earners (with an adjusted income above £240,000) continuing to reduce the allowance by £1 for every £2 of income above this threshold.
- Capital Gains Tax (CGT) Allowance
The Capital Gains Tax Allowance remains frozen at £12,300 for the new tax year, meaning that individuals can earn up to this amount in capital gains without being taxed. If your gains exceed this threshold, you will be subject to CGT, with rates of 10% for basic-rate taxpayers and 20% for higher and additional-rate taxpayers. For residential property, the rates increase to 18% and 28%, respectively.
- Buy-to-Let and Property Tax Changes
There are no significant changes to buy-to-let and property tax regulations for the 2023/2024 tax year. However, landlords should be aware that the mortgage interest tax relief changes, which were phased in from 2017, are now fully in effect. This means that landlords can no longer deduct mortgage interest from their rental income before calculating their tax liability. Instead, they will receive a 20% tax credit on the mortgage interest