April 6 marked the start of a new tax year. We highlight some of the key changes introduced by the Government that will impact individuals this year, which runs from April 6 2023 to April 5 2024.

Income tax thresholds changed

The most significant change made by Chancellor Jeremy Hunt in the Autumn Statement was the reduction of the Additional-Rate and Higher Rate income tax thresholds, meaning that from April 6 the rate at which individuals began paying 45% income tax started at £125,140, down from £150,000. The Chancellor estimates that somebody earning £150,000 will pay an extra £1,200 income tax per year.

He also announced in the Autumn Statement that other tax thresholds, including the Personal Allowance and Basic Rate, would be frozen until April 2028, rather than the 2025/26 tax year as previously announced. This is designed to swell the Treasury’s coffers due to ‘fiscal drag’; as people’s salaries increase, they will tip over into higher rate tax bands.

The picture is slightly different in Scotland. The higher-rate tax band, for earnings between £43,663 and £125,140, increased from 41% to 42%, whilst the top rate tax band increased from 46% to 47%. The threshold for this band has also reduced from £150,000 to £125,140.

Capital Gains Tax threshold reduction

Individual’s Capital Gains Tax (CGT) allowance was more than halved in the new tax year, from £12,300 to £6,000. It will be reduced further from April 2024 to £3,000.

CGT is payable on profits earned when people sell or gift certain items worth more than £6,000 such as antiques or art, or assets including second homes and shares held outside of an ISA or PEP.

Individuals in the basic income tax band pay 10% on their gains and 18% on gains realised with a residential property. Higher and additional rate taxpayers pay 20% on gains and 28% on residential property.

From 6 April, the dividend allowance was also cut from £2,000 to £1,000. From April 2024, it will be reduced to £500. The rates of dividend tax, however, remained the same at 8.75% for basic rate taxpayers, 33.75% for those in the higher rate band and 39.35% for additional rate payers.

Personal tax relief

The Chancellor made a number of changes to pension taxation in the Spring Budget. These included:

• The amount that an individual can contribute tax free to their pension fund was raised from £40,000 to £60,000 per annum from April
• For those who are already drawing down on their pension, the total amount they can save tax free under the Money Purchase Annual Allowance was increased from £4,000 to £10,000 from April
• The Government committed to abolishing the Lifetime Allowance, which currently stands at £1,073,100. The lifetime allowance charge was removed from the start of this tax year

State Pension on the rise

The State Pension increased by 10.1% in April. Those qualifying for the full new State Pension now receive £203.85 per week, up from £185.15. Those on the older State Pension – people who reached State Pension age before April 2016 - will now receive £156.20, up from £141.85.  

Since 2010, the State Pension has increased in line with the triple lock commitment, which usually means that State Pension payments rise each year by the highest of inflation, average earnings growth or 2.5%. This was suspended in 2022 but brought back this year.

Additionally, starting in April 2023, the minimum income guarantee standard for individuals receiving Pension Credit was adjusted to match a 10.1% increase in inflation. This change will safeguard pensioners with low incomes from inflation and ensure that they don’t forfeit any of their State Pension increase due to the Pension Credit means test.

Savings allowances remain untouched

The amount you can save tax free in an ISA has remained unchanged at £20,000. This can be used in a cash or stocks and shares ISA, or a combination of both. The Personal Savings Allowance is also untouched – Basic Rate taxpayers can earn £1,000 from savings interest before they incur tax, with Higher Rate taxpayers benefitting from a £500 allowance. Additional Rate taxpayers don’t have a PSA and incur tax on any savings interest they earn.

National Insurance and Inheritance Tax thresholds remain unchanged

National Insurance (NI) payments underwent a seesaw experience during the last tax year, increasing by 1.25 percentage points at the start of the year, before being reversed during the infamous mini-budget. Since 6 November, employees pay 12% on earnings between £12,570 and £50,270, with earnings above £50,270 incurring 2%. There were no further changes to NI this tax year.

Likewise, threshold frozen was Inheritance Tax. This is charged 40% on assets left to heirs on death, with the nil-rate band remaining at £325,000. This threshold has been in place since 2010-11 and will remain until 2028.

For full tax planning and advice, please consult a professional advisor.