Tax Changes in 2023-24 – What You Need To Know
This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Smith & Pinching in Norwich, Lowestoft and Eaton. Levels, bases and reliefs from taxation may be subject to change. The value of your investments can go down as well as up and you may get back less than you invested. The Financial Conduct Authority does not regulate taxation advice.
As households across the UK continue to face higher living costs in 2023, many are looking at their budgets to identify areas for savings. Yet could the answer partly lie in your tax plan?
The UK tax year runs from 6 April until 5 April each year. At the time of writing, we are in the 2023-24 tax year and this marks a period of important tax changes from the previous year.
Below, our Norwich financial planners at Smith & Pinching explain some of the key tax changes you should know about in 2023-24, how they might affect you and ideas to navigate them.
We hope this content is helpful. If you want to discuss your financial plan with us, please get in touch to arrange a no-obligation financial consultation, at our expense:
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What has happened in the 2023-24 tax year?
It is important to understand some of the background to the 2023-24 tax year, to grasp why changes have occurred and why they matter.
Naturally, the arrival of COVID-19 in 2020 has had a huge impact on government spending and policy since 2020. The gradual lifting of lockdown in 2021 led to a rise in economic activity as people returned to work, pushing up inflation.
Rising prices were not helped by global supply chain bottlenecks and, later in 2022, Russia’s invasion of Ukraine. The latter triggered a big shock to wholesale food and energy prices, pushing up the costs for UK consumers at the supermarkets and petrol pumps.
To try and support households, the UK government introduced financial support measures such as the Coronavirus Job Retention Scheme. Whilst these helped to protect businesses and jobs, they placed a huge strain on the public finances.
With the country now even more indebted, changes to the UK tax system were probably inevitable. However, to try and protect itself against accusations of introducing tax rises which break manifesto pledges, the Conservative government has arguably tried to avoid overt increases to Income Tax, Capital Gains Tax (CGT) and other taxes.
Instead, it has chosen to retain Income Tax freezes – such as the £12,570 tax-free Personal Allowance – until April 2028. As average UK wages go up over time, around 1 in 7 taxpayers are expected to start paying the 40% Higher Rate by 2027-28.
A notable exception to the Income Tax freeze is the 45% Additional Rate. In April 2023, the threshold for this went down to £125,140 from £150,000. For those with earnings within this range, consider speaking with a financial adviser to explore your tax planning options.
Some other important changes in 2023-24 include the abolition of the lifetime allowance charge (for pensions), a 50% increase in the maximum possible annual allowance (to £60,000) and reductions to the tax-free allowances for capital gains and dividends.
How do I account for the 2023-24 changes in my tax plan?
In many ways, the tax landscape has become more punitive for taxpayers and investors in 2023-24. Yet there are still ways to optimise your wealth and finances if you work with a financial adviser to make the best use of the tools available to you.
A good starting point for investors is to use their ISA. In 2023-24, you can commit up to £20,000 to your ISAs each tax year. Any interest, capital gains and dividends generated within your ISAs will be free from their usual respective taxes.
Try to avoid leaving your ISA planning until the last minute in January, February or March 2024 when you may be more limited in your ability to maximise your £20,000 allowance. Instead, consider spreading your ISA contributions across the tax year.
With the lifetime allowance charge now abolished, and the maximum annual allowance pushed up to £60,000, 2023-224 could be a great opportunity to optimise your pension plan with the help of a financial adviser.
A pension is one of the most tax-efficient tools available for retirement planning. For instance, pension contributions can receive tax relief equivalent to a taxpayer’s highest marginal rate. This equates to a 20% “boost” to contributions for someone on the Basic Rate; or, a 40% “boost” for someone paying the Higher Rate.
In 2023-24, the tax-free allowance for capital gains (the Annual Exempt Amount) has gone down from £12,300 per year to £6,000. In 2024, it is expected to fall further to £3,000. As such, this tax year could be very important for investors looking to restructure their portfolio to make it more tax-efficient (e.g. using the “Bed and ISA” approach).
The tax-free Dividend Allowance has also been reduced from £2,000 per year to £1,000 in 2023-24. Next year, it is planned to go even lower to £500. Again, investors should consider speaking with a financial adviser now to make the most of the more generous tax-free allowance available.
For those in a marriage or civil partnership, remember you are generally allowed to make tax-free asset transfers between you and your partner. So, if one person has fully used their ISA or another tax-free allowance for 2023-24 and the other has not, then one option might be to transfer to the second person to optimise your tax-free investment returns.
Conclusion & invitation
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