In his autumn statement, the chancellor announced a range of financial measures that will likely affect your personal finances in 2023.
Jeremy Hunt announced a range of changes that will likely increase your tax burden in the coming years, including a reduction to several allowances and exemptions, and cuts to tax thresholds.
Read on to discover four tax changes that could affect your financial wellbeing they come into effect in the 2023/24 tax year.
1. A drop in the Capital Gains Tax annual exempt amount
You typically pay Capital Gains Tax (CGT) on the profits from selling assets, such as second homes, non-ISA investments and even alternative investments, namely art or antiques.
Everyone benefits from an “annual exempt amount”, which allows you to make a gain up to a certain value before any CGT would be due. In the 2022/23 tax year, this stands at £12,300. Couples can combine their exemption amounts and make gains of up to £24,600 before paying CGT.
The chancellor, Jeremy Hunt, announced in his autumn statement that the CGT annual exempt amount would drop to £6,000 in April 2023, then further to £3,000 in April 2024.
This change means that more of your profits will be subject to CGT in the future. These CGT tax rates are as follows:
- Basic rate – 10%, or 18% for residential property
- Higher rate – 20%, or 28% for residential property
Before the CGT annual exempt amount changes, you could consider selling assets to make profits up to this amount. This way, you can make the most of the £12,300 exemption before it drops to £6,000 in the next tax year.
It may also be wise to start saving and investing in a tax-efficient ISA, as any profits earned in an ISA are free from Income Tax and CGT.
2. The Dividend Allowance will be reduced
The CGT annual exempt amount wasn’t the only change made by the chancellor in his autumn statement. The Dividend Allowance – the amount of dividends you can earn before paying Dividend Tax – will also be reduced in the 2023/24 tax year.
This allowance will fall from £2,000 to £1,000 in April 2023, then again to £500 in April 2024.
If you earn dividends above this allowance, you’ll typically pay Dividend Tax at your marginal rate. The Dividend Tax rates are:
- Basic rate – 8.75%
- Higher rate – 33.75%
- Additional rate – 39.35%
If you receive an income from dividends – for instance, if you’re a business owner who takes a lower salary and higher dividend payments, or you earn dividends from shares – you’ll likely pay more tax on your dividends from April 2023.
Then, when the allowance drops further in 2023/24, even more of your dividend income will be subject to tax. As such, it may be prudent to make the most of the Dividend Allowance before it drops in April 2023.
3. A reduction to the additional-rate tax threshold
Last September, Kwasi Kwarteng, the former chancellor, announced that the 45% additional-rate tax band would be overturned in his ill-fated mini-Budget.
Jeremy Hunt was quick to reverse this in his autumn statement, as well as dropping the threshold at which you start to pay additional-rate Income Tax.
Indeed, the threshold that you start paying additional-rate tax will decrease from £150,000 to £125,140 in the 2023/24 tax year.
This means that, if you have earnings above £125,140, you will likely pay more Income Tax in the new tax year. In fact, if you earn more than £150,000, you will be liable to pay around an extra £1,200 in Income Tax every year.
If you earn less than the additional-rate Income Tax threshold, there’s still a good chance you’ll pay more tax in the future.
This is because, when Income Tax thresholds, such as the Personal Allowance, are frozen rather than increased in line with inflation, you’ll likely see a larger proportion of your earnings taxed at 40% and 45% as your salary increases over the next few years.
4. The Corporation Tax hike will go ahead
When Rishi Sunak was still the chancellor in 2021, he announced that the rate of Corporation Tax would increase from 19% to 25% in April 2023.
If your company makes profits below £50,000, you will continue to pay 19% Corporation Tax. The full 25% rate only applies to companies with annual profits of £250,000 or more.
As you can imagine, this change will likely only affect you if you own a business. If you do, your company will likely pay more tax if you realise profits over the £50,000 threshold.
Get in touch
The aforementioned tax changes are just a few of the measures announced in the autumn statement.
To find out how your finances could be affected, please email enquire@london-money.co.uk or call (0207) 808 4120 to find out how we could help you.
Please note
Investments carry risk. The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
Tax levels and reliefs could change, and the availability of tax reliefs will depend on individual circumstances.