Tax changes ahead

The new tax year starting in April will see personal allowances frozen, as well as cuts
to tax exemptions that could increase your tax bills.

Your tax-free personal allowance will be frozen for the third year running at £12,570 and the basic rate band also held at £37,700. This means you will pay tax at the 40% rate when your total income exceeds £50,270. You can increase your higher rate threshold by making charitable donations under Gift Aid or paying pension contributions.

Rates and tax bands are different for Scottish taxpayers, who will see their higher rate tax (which kicks in when income exceeds £43,662) rise to 42% and top rate tax rise to 47%; the latter remains 45% for non-Scottish taxpayers. For all UK taxpayers, the top rate threshold is reducing from £150,000 to £125,140.

Dividends are taxed at 8.75% within your basic rate band, at 33.75%. Within the higher rate band and at 39.35% in the top rate band. Any dividends covered by your
£2,000 dividend allowance are free of tax in 2022/23, but this allowance will be cut to £1,000 per person on 6 April 2023.

Capital gains are taxed at 10% within your basic rate band and 20% in the higher tax bands. Although gains from residential property are taxed at 18% and 28% respectively.
Capital gains that are covered by your annual exemption of £12,300 in 2022/23 are free of capital gains, but that exemption will be cut to £6,000 on 6 April 2023.

Tax rates for some companies are also increasing in April. All companies, outside the oil and gas sector, currently pay corporation tax at 19%, but this main rate will increase to 25% where profits reach £250,000.

If your company’s profits don’t exceed £50,000 per year, it will still pay corporation tax at 19%. Between these limits, there is an effective marginal rate of tax of 26.5%.

These limits need to be adjusted where a company has ‘associated companies.”

We can help you decide which companies are associated for this rule