Increasing Liabilities
The personal allowance and basic rate band threshold are now frozen in place until 5 April 2028. As earnings increase, individuals will move into higher tax bands. This is often referred to as ‘fiscal drag’ because it will raise more tax without the government increasing income tax rates.
The personal allowance continues to be partially and then fully withdrawn for higher earners, with £1 of personal allowance lost for every £2 of adjusted net income over £100,000.
Summary table of key income tax rates and allowances for the tax year to 5 April 2024 (2023/24)
Band Taxable Income Tax rate in 2023/24
| Band | Taxable Income | Tax rate in 2023/24 | ||
| Other income | Savings income | Dividend income | ||
| Personal allowance | Up to £12,570 | 0% | 0% | 0% |
| Basic rate | £12,571 – £50,270 | 20% | 20% | 8.75% |
| Higher rate | £50,271 – £125,140 | 40% | 40% | 33.75% |
| Additional rate | Over £125,140 | 45% | 45% | 39.35% |
Other Allowances
Savings income continues to benefit from a personal savings allowance of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Dividend income attracts a £1,000 dividend allowance in 2023/24, down from the £2,000 allowance seen in previous years. These allowances are in addition to the personal allowance and attract a 0% rate of income tax.
Scotland
Individuals living in Scotland and classed as Scottish taxpayers have a slightly different banding system for ‘other income’ (non-savings, non-dividend) as follows:
| Band | Taxable Income | Tax rate in 2023/24 |
| Other income | ||
| Personal allowance | Up to £12,570 | 0% |
| Starter rate | £12,571 – £14,732 | 19% |
| Basic rate | £14,733 – £25,688 | 20% |
| Intermediate rate | £25,689 – £43,622 | 21% |
| Higher rate | £43,623 – £125,140 | 42% |
| Top rate | Over £125,140 | 47% |
The application of income tax to savings and dividends income is the same as for the rest of the UK.
Pension Tax Relief
There was good news in the Budget for those saving in a personal pension. The current pension lifetime allowance (LTA) charge is being abolished from 6 April 2023. The LTA has caused some high earners, particularly doctors, to retire early as tax charges apply on crystallisation of pension funds if the LTA (which was £1,073,100) was exceeded.
Individuals may be able to receive 25% of their pension savings as a tax-free lump sum when they become entitled to their pension benefits. This is currently capped at 25% of the LTA and going forwards, for most individuals, will remain capped at £268,275.
Another pension limit increased by the Chancellor in the Budget was the pension Annual Allowance (AA) which increased from £40,000 to £60,000 from 6 April 2023. The AA applies to the combined pension input by the individual and, in the case of employees, their employer. Pension contributions in excess of the AA result in a tax charge on the individual, although they may take advantage of unused AA amounts from the 3 previous tax years.
For those with high incomes, the AA is tapered. From 6 April 2023, where a taxpayer’s adjusted income exceeds £260,000 (increasing from £240,000), the AA is tapered by £1 for every £2 in excess of £260,000, down to a minimum of £10,000 (increasing from £4,000).
The Money Purchase Annual Allowance (MPAA) replaces the AA when an individual starts to flexibly access a defined contribution pension scheme. The MPAA will increase from £4,000 to £10,000 on 6 April 2023.
Note that an individual’s pension contributions can be very tax efficient depending on their level of income.
The taxation rules for pensions are complex as there have been numerous changes in recent years so please talk to us about your pension contribution strategy.
Tax Efficient Savings
There were no changes to the annual limits for Individual Savings Accounts (ISAs), Child Trust Funds or Junior ISA. These limits remain at £20,000, £9,000, and £9,000 respectively.
Capital Gains Tax
In the Autumn Statement, the Chancellor announced that the £12,300 annual tax-free capital gains tax exemption (or allowance) will be reduced to just £6,000 in 2023/24 and only £3,000 in 2024/25.
This change will mean that those disposing of capital assets will pay more tax, where the new lower allowance is exceeded.
Couples who are in the process of separating, or who have commenced divorce proceedings, need to be aware of new rules taking effect from 6 April 2023 concerning the transfer of capital assets between them as a result of their separation.
If you are planning any capital disposals, please contact us to discuss the best strategy for disposal.
Inheritance Tax
In the 2023 Autumn Statement, the inheritance tax nil rate band was frozen at £325,000 until April 2028. The residence nil rate band will also remain at £175,000 and the residence nil rate band taper will continue to start at £2 million.
If you anticipate your estate giving rise to inheritance tax in the future, please contact us to discuss measures that could potentially be put in place, alongside asset distribution within your family.
VAT
The VAT registration and deregistration thresholds continue to be frozen at £85,000 and £83,000 respectively, instead of increasing each year in line with inflation. This will remain the case until March 2026.
Since 1 January 2023, a new penalty regime has been in operation for late VAT return submission and late payment of VAT. The new system is designed to target more persistent offenders, with penalties escalating quickly where defaults re-occur.
