The 2023/24 tax year runs from 6th April 2023 until 5th April 2024. Typically, investors use the last few months of a tax year to do a final review of their financial plan and take advantage of any tax-efficient opportunities like individual savings accounts (ISAs) or topping up their pensions. However, this new financial year is a little different as it will bring some new and important changes that may impact your investments, business, and personal income.
In this blog post, we will take a look at what makes the 2023/24 tax year different and the new rates that you should be aware of, as well as allowance thresholds and how to make the most of your investments in the new tax year.
What’s different about the new tax year?
Taxes will rise this new financial year as per the November 2022 Autumn Statement delivered by Jeremy Hunt. Hunt stated that the UK is forecast by the OBR to remain in a recession until Q3 2023 and gross domestic product (GDP) is predicted to fall by over 2% over that time, with pre-pandemic levels not expected to return until Q4 2024.
In terms of living standards, post-tax income per person is projected to fall by 7% over the remainder of 2023 and 2024, and GDP is forecast to start growing again in 2025. To meet this growth, Hunt presented new targets for government borrowing and debt through spending reductions and tax increases. Some of these increases will come into effect during the new tax year, while others might take a little longer to be implemented. Either way, it’s important to understand exactly what’s changing and how it might affect you.
Income Tax in 2023/24
Your personal tax allowance is the tax-free income you can earn before paying tax on it. Whether you’re employed, self-employed, or have several income sources, you are entitled to one tax allowance to use once per tax year.
In 2023/24, the tax-free personal allowance for higher earners is dropping from £150,000 to £125,140, meaning that those who earn more than this limit will pay 45% income tax – that’s an extra £1,200 per year.
The table below shows the new income tax rates and thresholds for 2023/24 compared to 2022/23.
|Tax band||Income||Tax rate||Income||Tax rate|
|Personal allowance||Up to £12,570||0%||Up to £12,570||0%|
|Basic rate||£12,570 – £50,271||20%||£12,570 – £50,271||20%|
|Higher rate||£50,271 – £150,000||40%||£50,271 – £125,140||40%|
|Additional rate||Over £150,000||45%||Over £125,140||45%|
The above rates and thresholds also apply to Welsh and Northern Irish taxpayers. However, in Scotland, income tax rates will rise for higher and top-rate earners as shown below.
|Tax band||Income||Tax rate||Income||Tax rate|
|Starter rate||£12,571 – £14,732||19%||£12,571 – £14,732||19%|
|Basic rate||£14,733 – £25,688||20%||£14,733 – £25,688||20%|
|Intermediate rate||£25,689 – £43,662||21%||£25,689 – £43,662||21%|
|Higher rate||£42,663 – £150,000||41%||£43,663 – £125,140||42%|
|Top rate||More than £150,000||46%||More than £125,140||47%|
National Insurance in 2023/24
There have been several changes to National Insurance over the last year, starting with an increase of 1.25% in April 2022 as part of the government’s plan to fund health and social care. Then, in July 2022, the National Insurance contribution was raised from £9,880 to £12,570, and then the mini-budget in September 2022 removed the new rises completely. This has brought National Insurance rates back down from 3.25% to 2% for those earning over £50,270.
Following these ups and down in rates, no further changes are expected for the new tax year.
Inheritance Tax in 2023/24
Inheritance Tax (IHT) is charged at 40% on the assets or funds you leave to your family after you die, and the thresholds for these charges have also been frozen for the new tax year. The tax-free allowance (also known as the nil-rate band) remains at £325,000 until April 2028. The tax-free allowance on property (residence nil-rate band) is also frozen at £175,000. For example, if your family inherits property worth £500,000, the IHT bill would be £70,000.
As is the case with all other threshold freezes, it might seem positive to keep charges at the same levels. However, as prices rise, the inheritance you leave behind may go up in value, meaning it’s more likely to exceed the threshold and up the IHT bill.
Capital Gains and Dividend Tax in 2023/24
When you sell an asset such as property, the profits made are subject to Capital Gains Tax (CGT). Dividends are earnt from company profits if you’re a company shareholder. Unlike National Insurance and IHT, the tax-free allowances CGT and dividend tax are taking a considerable hit this new tax year. Last year’s allowance was £12,300, which will fall to just £6,000 this April. From April 2024, this will be cut further to £3,000.
After the tax-free allowance, the CGT rates remain the same for both basic-rate and higher-rate taxpayers.
|Tax band||Tax rate for property sale||Tax rate for other asset sale|
The dividend allowance will be halved on 6th April 2023, dropping from £2,000 to £1,000. From April 2024, it will drop further to just £500. Rates beyond the tax-free allowance remain the same.
|Income tax band||Dividend tax rate 2023/24|
Corporation Tax in 2023/24
If you’re an owner of a limited company, you will be aware of the Corporation Tax that applies to the profits you make on assets or investments. Corporation Tax was payable at a flat rate of 19% in the previous tax year. From April 2023, however, the chargeable rate is based on the profits your company makes.
|Annual profits||Corporation tax rate|
|Up to £50,000||19%|
For company profits falling between £50,000 and £250,000, you could be eligible to claim marginal relief on your annual company profits, which offers a gradual increase. The following do not qualify for marginal relief:
- Non-UK resident companies
- Close investment holding companies
- Companies whose annual profits exceed £250,000
When applying for this relief, you will need to consider your company’s taxable profits, any distributions received (such as dividends), any associated companies, and the time period of your tax return.
Council Tax in 2023/24
Depending on your area, your Council Tax bill is likely to go up this April. In fact, three-quarters of English councils have announced as much as a 5% hike. The regions with the lowest expected rise in council tax include Adur (1.99%), Telford and Wrekin (2%), and Canterbury (2.24%). Some of the regions with the highest expected rises of 5% include Bath and North East Somerset, Birmingham, and Blackburn and Darwen.
The Scottish Budget has also approved higher Council Tax rates in 2023/24 with no limit set on rises. However, local councils are advised to be cautious and responsible around these decisions.
Stamp duty in 2023/24
The stamp duty changes that were announced in the mini-budget last year are set to remain until 31st March 2025. This means that, for the next two years, existing homeowners are exempt from stamp duty charges on the first £250,000 of their property value (up from £125,000).
In Scotland, however, homeowners are liable to Land and Buildings Transaction Tax (LBTT) on property value over £145,000. The Scottish government hopes to freeze this threshold in the new tax year, however, rates on second homes already increased in December 2022 from 4% to 6%.
Other tax reliefs and allowances
The annual tax-free allowance for individual savings accounts (ISAs) remains £20,000. You can continue to invest in ISAs and take advantage of your tax-free allowance in the new tax year.
The annual tax-free allowance on pension savings will increase from £40,000 to £60,000 in the 2023/24 tax year. The money purchase annual allowance will also increase from £4,000 to £10,000 and the lifetime pension allowance charge will be removed. Taking advantage of these increases with minimised tax implications could be a crucial way to help build your wealth for later life.
Maximise your returns in the new tax year
Some of the changes coming into effect this new tax year could make investment and financial planning challenging, stressing the need to maximise our allowances where possible. If you’re looking for new investment opportunities in the new financial year, you could consider the Propiteer Capital Property Bond.
Our competitive returns are fixed rate, so even when if your tax bill goes up, the returns from your Propiteer Capital investment remain unchanged. Your investment in Propiteer Capital is also backed by a portfolio of desirable UK property projects, meaning that you can plan your finances easily and securely.
Tax legislation and the levels of relief from taxation can change at any time. Any change in the tax status of an investment or in tax legislation could affect the value of the investments held or their ability to provide returns to its investors. The tax treatment of an investment, and any returns received, will depend on the individual circumstances of the investor and may be subject to change in the future. If investors are in any doubt as to their tax position, they should consult their professional adviser.
Recommended Read: Corporate Investing: How to Make the Most of Your Company’s Spare Cash