New tax year for individuals

Information provided by Kidwells Accountancy on our website is for informational purposes only. For bespoke advice, call 01432 278 179 or email info@kidwellsaccountancy.co.uk to learn more about what is best for your business.

The COVID-19 pandemic is still having an impact on the economy, and now with the war in Ukraine along with all the sanctions against Russia, we will be seeing changes that are going to impact us all. 

National Insurance increase

A 1.25 percentage point increase in National Insurance rates comes into force on 6th April to cover health and social care. Rishi Sunak announced in his Spring budget that he would increase the threshold not by the planned £300 but by £3,000 matching the personal income tax allowance of £12,570. In April 2023 it will revert to its current rate although we will still pay the same amount on a new Health and Social Care Levy.   

State pension rise

The state pension is to rise by only 3.1pc in April because the “triple lock” has been suspended for a year. Under the triple lock system, the state pension increases every year by the higher of three figures: inflation, average earnings growth and 2.5%. Because of the higher than average earnings figure for the 2021/2022 tax year, pensioners would have received 8.3 percent rise. The system has become effectively a “double lock”.   

Income tax rates and thresholds

Chancellor Rishi Sunak announced last year that the personal allowance and all income tax thresholds are frozen until 2026. The current income tax rates will remain the same until at least the scheduled end of Parliament in 2024. NB The Chancellor did announce though that the rate of income tax will be reduced from 20% to 19% at that time.

Tax Band

Personal Allowance

Basic rate band

Higher rate band

Additional rate band

Threshold

£12,570

£12.571 – £50,270

£50,271 – £150,000

Over £150,000

Tax Rate

0%

20%

40%

45%

Capital Gains Tax

The current Capital Gains Allowance is £12,300 so If you sell any chargeable assets during the year, such as shares or a second home/rental property you own, these may lead to a capital gain if the profit from the sale exceeds the allowance. 

The percentage of capital gains tax you pay depends on where the profit has come from and whether you are a basic or higher rate taxpayer.  

To reduce any profit which is liable to tax it is worth checking if there are any costs you can claim as an allowable expense to reduce that gain. 

Pensions and Savings Allowances

The end of the tax year is the deadline to use savings allowances: the maximum contribution for a pension before incurring tax is £40,000 and £20,000 for an Isa.  

Tax relief can be made by making contributions to a pension. There is a lifetime limit though on how much you can contribute to a pension and later withdraw. The lifetime limit used to increase each year with inflation, but this limit has been frozen at £1,073,100 until 2026. For those who have a sizeable pension, they could face a 55% tax charge if they withdraw any income as a lump sum above the lifetime limit over the next 5 years or 25% if the money is taken as income. 

The limit a person can contribute into a pension pot whilst claiming tax relief is capped at a maximum of £40,000 which is the same as last year.  

Inheritance tax

Estates worth £325,000 or less remain tax-free. Any amount exceeding this is taxed at 40% as inheritance tax. This amount has been frozen until 2026. There is also the Residence Nil-Rate band to consider meaning that an estate including the family home benefits from up to a further £175,000 when passed on to direct descendants.  

Where a married person dies and leaves their estate to their spouse, the surviving spouse may inherit the tax-free allowance doubling the allowance which they can pass on. This would mean the family home allowance would double as well from £175,000 to £350,000. 

Marriage allowance

For married couples or civil partners if one person earns less than their personal allowance and the partner’s earnings fall within the Basic Rate band it may be worth claiming marriage allowance. This allows the lower earner to transfer 10% of their personal allowance to their spouse/partner enabling them to earn £13,830 before paying tax. 

If you need any help or information regarding your personal taxes, contact the team who will guide you through what can be very confusing.

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Disclaimer: Information provided by Kidwells Accountancy on our website is for informational purposes only. It is provided in good faith but we make no guarantee of any kind regarding the accuracy, reliability, or completeness of any information on our site. We always recommend businesses seek independent legal and financial advice before working with us or acting on any information on our website.

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