2023 has been a lot more stable, politically and economically, than 2022. Rather than the multiple fiscal events of the latter, there has been a single Budget plus an Autumn Statement. However, with a pre-election Budget due on 6th March, we wait to see whether there will be major changes announced for 2024/25, particularly tax cuts. Any such changes may affect end of year planning for 2023/24. For example, it may turn out to be advantageous to delay receiving income such as bonuses or dividends until next tax year, if they would be taxed at lower rates (perhaps because the government decides to unfreeze thresholds).
In this newsletter we set out what you need to know about the tax landscape (as currently known) over the next 12 months, but please check with us before finalising any big financial decisions, just in case the tax treatment has changed after publication.
Almost all the thresholds for both National Insurance Contributions (NICs) and income tax have been frozen until April 2028. With inflation still well above the 2% target, this freeze will pull a lot of earners into the higher tax bands as their salaries or business profits rise; this also has a knock-on effect on the amount of personal savings allowance (PSA) available to set against income such as interest, where rates have of course risen significantly in the last year or so. Income within the PSA is taxed at a nil rate.
Once into the 40% band, the PSA is cut from £1,000 to £500 per year; it disappears completely for anyone who pays income tax at 45%, which applies when income exceeds £125,140.
Individuals who are resident in Scotland pay income tax on earnings and profits at different rates.
The dividend allowance will be cut to £500 from 6 April 2024, having been £1,000 for 2023/24. This means more dividend income will be taxable each year, although the tax rates applicable to dividends are not changing in 2024/25.
The personal allowance has been frozen at £12,570 until April 2028; that allowance is tapered away by £1 for every £2 of income over £100,000 per year.
The annual exemption for capital gains tax will be halved from £6,000 to £3,000 in 2024/25.
The combination of the allowance cuts and threshold freezes will affect the tax and NICs payable by directors and shareholders of family companies.
All employers need to budget for increases in the rates of National Living Wage and National Minimum Wage from 1 April 2024.
We recommend you undertake an annual review of your financial affairs, in order to check that you are not paying more tax than you need to and to see whether any structures you set up in the past are still appropriate. Between now and the end of the tax year (5 April 2024) is a good time to assess whether you have claimed all the relevant allowances and are as well defended against high tax charges as you can be.
Of course, the personal circumstances of each individual must be taken into account in deciding whether any particular plan is suitable or advantageous, but these suggestions may give you some ideas. We are happy to discuss them with you in more detail.
