Four Ways The 2023 Budgetary Change Could Impact Your Tax And Finances
By David Pritchard
In November 2022, the Chancellor presented his Autumn Statement speech, outlining some new policies and budgetary changes. This new budget – due to take effect from 6 April 2023 – will bring with it a wave of changes that will affect everyone to some degree.
It’s important to be aware of the tax implications arising from this new budget so you can carry out proper planning for any investments or pensions before the end of the current tax year.
The four major implications are as follows:
Whilst most employees will receive a pay rise in 2023, more people will be pulled into higher tax brackets as a result of frozen tax thresholds.
This phenomenon known as fiscal drag, will affect primarily higher rate taxpayers. Previously, the higher rate tax threshold began at £50, 271 and ended at £150,000. This meant that people whose income fit within the boundaries of this band were liable to pay 40 per cent in taxes.
However, from April 2023, the top of this tax band will be drastically lowered from £150,000 to £125,140 and anyone earning over this threshold will have to pay 45 per cent tax.
This change is certainly worth bearing in mind as we prepare for the new tax year. Nevertheless, there is a tiny leeway that taxpayers might want to consider in the form of pensions. With pension contributions, you can reduce the amount you earn and subsequently, lower your higher rate tax.
The capital gains tax allowance has been halved
In his Autumn Statement, the Chancellor announced a dramatic change in the allowance available to taxpayers who are liable to Capital Gains Tax.
Capital Gains Tax is typically payable when you sell or gift certain assets. It is critical to note that the gains derived from the ‘disposal’ of assets are added to your income to determine your tax band.
At the moment, the Capital Gain Tax rates remain unchanged. Basic rate taxpayers pay 10 per cent on their gains (or 18 per cent on residential property) whereas higher rate taxpayers pay 20 per cent on their gains (or 28 per cent on residential property).
However, the snag lies in the fact that the allowance on this tax has been cut down from £12, 300 per annum for each individual to a mere £6,000 in 2023. There are no opportunities for taxpayers to catch their breaths as this figure will be halved again in 2024 to £3,000.
Thus, it may be worthwhile to consider timing the ‘disposal’ of your assets before the end of the current tax year.
A reduction in the dividend allowance
In terms of dividends, we expect to see drastic cuts as well in the new tax year. The tax-free allowance for dividend income will be lowered from £2,000 to £1,000 in 2023 and subsequently, to £500 in April 2024.
This new policy will affect individuals with taxable dividend income above £1,000 in the 2023 tax year and £500 from April 2024. So, if you own shares or a limited company with dividends, it’s important to start taking action now.
Corporation Tax will jump
Amidst rising tax rates for individual taxpayers, owners of limited companies and businesses are facing a new obstacle ahead.
The main rate of Corporation Tax levied on UK businesses will increase from 19 per cent to 25 per cent. This will affect many businesses leading to less profits, less investments and ultimately, redundancies.
What’s not going to change?
As mentioned earlier, the new tax year will bring a change in the fiscal sector. But what’s not going to change?
At the moment, the only constants are the personal allowance, national insurance, and the nil rate band.
Gearing up for the future
The UK government currently owes about 2.5 trillion pounds in debt, with the interest on this debt ranking as the government’s second highest expenditure.
As a result, we can expect more tax changes in the coming years as the government struggles to create a balanced budget and reduce the national debt. You can find out more about the current changes on the latest episode of our podcast, A Dab Of Investment.
In these dire times, it’s sensible to consult an independent financial adviser and ensure that your tax strategy is as efficient as possible. Assess your situation and make the most of your allowances before the end of this current tax year.
The views expressed in this article are those of the author and do not constitute financial advice. Applewood Independent Ltd is authorised and regulated by the Financial Conduct Authority. For financial advice designed for you and your specific circumstances, please contact the author using the contact details provided in this article or, alternatively, contact the Applewood Independent Ltd office on 01270 626555.
The value of your investment can go down as well as up, and you may not get back the full amount invested.