Personal Tax Changes

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Whilst most of the tax rates are remaining the same from 5 April 2023, there are a few changes. The additional rate at 45% will kick in earlier, and a reduction in the dividend allowance.

What has changed:

The dividend allowance has been reduced from £2,000 to £1,000 – meaning that instead of receiving £2,000 of dividends tax free, only the first £1,000 will be tax free.

The additional rate band has been moved so earnings over £125,140 will now be taxed at 45% moving the band forward from £150,000.

A reminder of the tax rates:

Our Top Tips:

  • Earnings from dividends up to £1,000 from 6 April 2023, (£2,000 before 5 April 2023).
  • Earnings from interest (including interest on directors loan) the first amount of £1,000 is tax free if you earn under £50,000, £500 if you earn under £125,140 (£150,000 previously)
  • Make the most of tax bands available from spouses by transferring income producing assets. If you have property income or other income producing assets to a spouse. See our article.
  • If you receive Child Benefit and earn between £50,000 and £60,000, then consider ways to reduce your income and consider ways to extract money from the business.
  • Consider pension contributions personally. Ensure you capture all your gift aid contributions. Claim for all allowable costs.
  • If you receive over £100,000, you will be losing £1 of your personal allowance for every £2 you go over this amount. This means that you will effectively be taxed at 60%. So consider ways to reduce your income, read our blog.
  • Consider pension contributions personally. Ensure you capture all your gift aid contributions.
  • Consider EIS/SEIS/VCT investments – these investments offer upfront income tax relief but can carry higher risk.
  • Review your pension allowance. Remember you can contribute £40,000 a year into a pension (assuming you earn relevant earnings) however note if your income is over
  • £240,000 then you lose part of this allowance £1 for every £2 of income. If you earn
  • £312,000 your allowance is £4,000 plus any unused allowances from the last three years. Also watch your lifetime allowance on pensions. If your pension pot is £1,073,100 you can face penalty tax charges.
  • If you have a holiday home or other self-employment income, ensure you are claiming capital allowances.
  • Take advantage of your ISA allowance of £20,000 and for any children under 18, £9,000.
  • If you are aged 18-39 you can open a lifetime ISA and put in up to £4,000 (this is not in addition to the £20,000 above) a year until you’re 50. The government will add a 25% tax free bonus to these savings, up to a maximum of £1,000 a year.

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