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Happy new (tax) year! Key changes in 2022/23 tax year

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Happy new tax year!  The new tax year commenced on 6 April 2022; we outline some of the main changes to impact individuals below.

Increase in National Insurance

The Government announced plans last year to introduce a health and social care levy where working people will contribute to fund the NHS and the social care crisis.

To help fund this, National Insurance Contributions (NIC) paid by employed and self-employed workers increased by 1.25 percentage points from 6 April. The 1.25% levy will be paid by all employed adults, including those who qualify for State Pension.

This means an employed basic rate taxpayer earning £24,100 will contribute an extra £180 per year in tax. A higher rate taxpayer earning a salary of £67,100 will contribute an extra £715 per year.

The National Insurance lower earnings limits will increase by 3.1% – in line with September 2021 Consumer Prices Index inflation. Upper earnings thresholds, however, are frozen at £50,270, which means you’ll be able to keep more of your money before NICs kick in, offsetting some of the effects of the rate rises.

For the full Government information, visit here.

Dividend tax rates to increase

A dividend tax is an amount you may have to pay if you’re an investor that earns money from owning company shares.

From the 2022-23 tax year, basic rate dividend tax will be charged at 8.75% instead of 7.5%. Higher rate dividend taxpayers will be charged 33.75%, instead of 32.5%, and additional rate dividend taxpayers will pay 39.35% instead of 38.1% respectively.

The tax on dividends has increased by 1.25 percentage points. The tax on this income earned is only charged if it’s above the dividend tax allowance, which hasn’t changed from last year’s £2,000.

Also bear in mind, you won’t be charged tax on any investments that are held within an ISA wrapper.

The Government have advised the funds raised by the above tax increases will be legally protected as its contribution is solely intended to clear the NHS backlog and to resolve issues around care costs across the UK.

Visit the Government's website for full information.

Extension of reporting on capital gains

The Government introduced changes in the Autumn 2021 Budget to reporting requirements for UK residents who make a capital gain after selling a property.

Previously, the seller had 30 days to report and pay capital gains tax from the completion date. From the date of the Autumn Budget, 27 October 2021, the timeframe doubled to 60 days.

This means anyone who has made a capital gain after selling a secondary home or buy-to-let property will need to send a residential property return to HMRC and pay the capital gain tax within 60 days of the completion date.

Remember, this only applies to properties sold on or after the 27 October 2021. The 30 day timeframe still applies to properties sold between the 6 April 2020 to 26 October 2021 for reporting and paying the CGT.

Inheritance Tax reporting

The regulation on reporting the class of an estate has changed and took effect from 1 January 2022. The new rules are said to be simpler when reporting a deceased’s estate.

The amended legislation means a reduction in forms such as the IHT205 and IHT207, which are now scrapped, meaning more estates will classify as ‘excepted’.

As an heir you may not be required to report the estate’s value as long as there’s no Inheritance Tax to pay or other details on why the estate would be reported.

The requirements for an excepted estate are now:

  • The value is below inheritance tax threshold, which stands at £325,000
  • The estate is worth £650,000 or less and any unused threshold is transferred from a partner who passed away first
  • The estate is to be worth less than £3 million and the deceased left everything to their living partner who lives in the UK or a registered UK charity
  • Have UK assets worth less than £150,000 and the deceased lived permanently outside the UK when they passed away

More information can be found here.

Increase in State Pension

Introduced this tax year is a 3.1% rise in the State Pension.

This affects people eligible for the new flat rate State Pension or the basic State Pension. This means individuals who qualify for a full new State Pension will receive £185.15 a week, an increase from the previous £179.60. Those who reached the State Pension age before April 2016 and qualify for the basic State Pension will now see an increased £141.85, up from £137.60.

Although the Government has increased the State Pension allowance, the rise is below the climbing inflation rate, currently at 5.5%, and is predicted to grow to 7.25% by spring, meaning pensioners are taking a cut of £388 a year to their State Pension.

For more information on the changes in the new tax year please visit the Government  website.

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