14 March 2023
You would not be alone in thinking that in recent years, the UK’s financial landscape has undergone a serious shift.
Costs have risen for families, individuals, and businesses alike – and at the same time, many tax allowances and exemptions have been frozen or reduced.
If you are unaware of the impact these shifts could have on the wealth of your family or business, you might miss out on key opportunities to mitigate their effects where possible.
So, here are 13 recent and upcoming financial changes the UK has seen, and how they could have an impact on your wealth.
1. Corporation Tax is set to increase in April 2023
If you are a business owner who pays Corporation Tax, you may already know that your liability is set to increase this April.
The rate of Corporation Tax is rising from 19% to 25% for companies with non-ringfenced profits surpassing £250,000. If you run a business, it is important to prepare for this increased burden that will come into place from 1 April.
2. Some Income Tax bands and National Insurance thresholds have been either frozen or decreased until April 2028
In his autumn statement, chancellor Jeremy Hunt set the Income Tax Personal Allowance at £12,570 until April 2028. This allowance is the amount an individual can normally earn before paying Income Tax.
Hunt also froze the higher-rate Income Tax band and National Insurance (NI) thresholds at their current rates for this time period, and reduced the amount at which earners will pay additional-rate tax from £150,000 to £125,140 from 6 April 2023.
So, if your earnings rise in the coming years, you could be pushed into a higher tax band, and will pay more Income Tax than if the Personal Allowance was increased year-on-year.
3. The Inheritance Tax nil-rate bands are fixed until 2026
Inheritance Tax (IHT) is usually paid at a rate of 40% on most assets passed down to beneficiaries.
Fortunately, there are allowances, known as “nil-rate bands”, under which beneficiaries may pay no IHT. These are frozen at the following rates until 2026:
- The nil-rate band, applying to cash, shares, and other non-property assets, will remain at £325,000.
- The residence nil-rate band, pertaining to property, will stay at £175,000.
So, if your benefactor’s estate rises in value, and they pass away before 2026, your IHT bill may increase as a result.
Please note, The Financial Conduct Authority does not regulate estate and tax planning.
4. The Capital Gains Tax annual exempt amount will decrease twice in the coming years
As of the 2022/23 tax year, the Capital Gains Tax (CGT) annual exempt amount stands at £12,300.
This amount marks how much an individual can yield in profits from the sale of goods, including second homes, vehicles, and non-ISA shares, without paying CGT.
However, in his autumn statement, the chancellor announced a gradual reduction in the CGT annual exempt amount. The amount will decrease to:
- £6,000 in April 2023
- £3,000 in April 2024.
So, if you are planning to sell off some assets in the coming years, it is important to be aware of the increased CGT bill you may pay as a result of these changes.
5. The Dividend Allowance is also set to reduce
In addition to the CGT annual exempt amount reductions that will come into place in April 2023 and April 2024, the Dividend Allowance is set to decrease across this time frame.
In a crackdown on “unearned income” allowances, the chancellor stated the Dividend Allowance will reduce from its current rate of £2,000 a year to:
- £1,000 a year from April 2023
- £500 a year from April 2024.
If you take dividends as part of your remuneration, it may be beneficial to prepare for an increased Dividend Tax bill in the coming two years.
6. The proposed Health and Social Care Levy was scrapped by former chancellor Kwasi Kwarteng
As of April 2023, a new Health and Social Care Levy was set to replace the 1.25 percentage point rise in National Insurance contributions (NICs) that was already instated in April 2022.
Yet in his September mini-Budget, former chancellor Kwasi Kwarteng announced the NIC rise would be scrapped from 6 November 2022, and the Health and Social Care Levy would be cancelled.
So, most earners will have seen a reduction in the NICs you pay since 6 November 2022.
7. 2 key VAT thresholds have been frozen until 2026
In another allowance freeze, the VAT registration and deregistration thresholds for businesses have been fixed at their current rates until 2026.
If you are a business owner, you must register with HMRC for VAT purposes if your taxable turnover exceeds £85,000. In the autumn statement, Jeremy Hunt extended this fixed threshold until 1 April 2026. The deregistration threshold has been set at £83,000 for the same time period.
It is important for business owners to be aware of these freezes, so you can prepare for a potentially higher VAT bill in the coming years.
8. The Personal Savings Allowance is not set to increase in the coming years
Usually, the Personal Savings Allowance can provide relief for savers. It marks how much an individual can save without paying tax on interest earned.
As of the 2022/23 tax year, the Personal Savings allowance is as follows.
- Basic-rate taxpayers have a £1,000 Personal Savings Allowance on which they do not pay tax on any interest earned.
- Higher-rate taxpayers have a £500 Personal Savings Allowance.
- Additional-rate taxpayers do not have a Personal Savings Allowance.
However, as your cash savings potentially accumulate interest, you could pay higher tax on it, seeing as the Personal Savings Allowance is set to remain the same for each tax band.
9. Adult ISA subscription limits have remained fixed since 2017
If you have ISAs, you will be aware that the maximum amount you can pay into all the accounts you hold is £20,000 a year. Different types of ISAs have their own contribution limits, but the total limit across all your accounts is set in stone.
Indeed, the £20,000 limit has been in place since 2017, and there are no signs it will be reformed.
So, while your estate increases in value over the years, the limit of how much you can place in a tax-efficient ISA is likely to remain the same. This may leave more of your wealth open to taxation than if ISA subscription limits rose year-on-year.
10. Income Tax basis period reform will come into force in 2024/25
The upcoming Income Tax basis period reform is simple: as of 2024/25, all businesses will need to use the tax year as their basis period.
As a business owner, you can prepare this change by shifting your basis period from whatever it is now, to match the start and end of the tax year. Working with a financial planner can help you take on this transition.
11. Councils will be able to increase Council Tax without a local referendum from April 2023
Starting from April 2023, local authorities will have the power to increase Council Tax without informing, or consulting, residents.
Councils with social care duties will be able to raise rates by 5%, while those without can increase them by 3%. According to data published by the BBC, the Treasury expects 95% of those eligible to implement the full 5% rise.
So, you could see your Council Tax bill increase by up to 5% from April 2023 onwards.
12. The student loan repayment threshold will remain frozen until 2025
As of 2022/23, the student loan repayment threshold dictates you pay 9% of anything you earn over £27,295 each year. In 2022, the government announced they would freeze this threshold until 2025.
13. Lifetime Allowance charges will be removed in April 2023, and fully abolished in future
Finally, on a more positive note, the pension Lifetime Allowance (LTA), which limits the amount an individual can pay tax-efficiently into a pension over their lifetime, is set to be abolished.
As of the 2022/23 tax year, if your pensions breach the above value, you could pay up to 55% tax if you draw your pension as a lump sum, or 25% if taken as income, on top of your marginal rate of Income Tax.
In happy news for many, in his spring Budget, Jeremy Hunt announced he would remove the LTA tax charge altogether from the 2023/24 tax year onwards. What’s more, he said the allowance will be fully abolished in a future Finance Bill.
So, while your tax burden may rise in many other areas in 2023/24, you could benefit from a more tax-efficient pension withdrawal from 6 April 2023 onwards.
Please note, a pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.
Get in touch
Need guidance on how any or all of these changes could have an impact on your personal finances? Get in touch. Email firstname.lastname@example.org or call 0161 8080200.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
All contents are based on our understanding of HMRC legislation, which is subject to change. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.