Personal Tax – Spring Budget 2023

The personal allowance

The income tax personal allowance was already fixed at the current level until April 2026 and will now be maintained for an additional two years until April 2028 at £12,570.

There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. So there is no personal allowance where adjusted net income exceeds £125,140.

The marriage allowance

The marriage allowance permits certain couples, where neither party pays tax in the tax year at a rate other than the basic rate (or intermediate rate in Scotland), to transfer £1,260 of their personal allowance to their spouse or civil partner.

Tax bands and rates

The basic rate of tax is 20%. In 2023/24 the band of income taxable at this rate is £37,700 so that the threshold at which the 40% band applies is £50,270 for those who are entitled to the full personal allowance.

Once again, the basic rate band is frozen at £37,700 up until April 2028. The National Insurance contribution’s upper earnings limit and upper profits limit will remain aligned to the higher rate threshold at £50,270 for these years.

From 6 April 2023, the point at which individuals pay the additional rate will be lowered from £150,000 to £125,140.

The additional rate for non-savings and non-dividend income will apply to taxpayers in England, Wales, and Northern Ireland. The additional rate for savings and dividend income will apply to the whole of the UK.

Tax on savings income

Savings income is income such as bank and building society interest.

The Savings Allowance applies to savings income and the available allowance in a tax year depends on the individual’s marginal rate of income tax. Broadly, individuals taxed at up to the basic rate of tax have an allowance of £1,000. For higher-rate taxpayers the allowance is £500. No allowance is due to additional rate taxpayers.

Savings income within the allowance still counts towards an individual’s basic or higher rate band and so may affect the rate of tax paid on savings above the Savings Allowance.

Tax on dividends

Currently, the first £2,000 of dividends is chargeable to tax at 0% (the Dividend Allowance). This will be reduced to £1,000 for 2023/24 and £500 for 2024/25.

These changes will apply to the whole of the UK.

Dividends received above the allowance are taxed at the following rates for 2023/24:

  • 8.75% for basic rate taxpayers
  • 33.75% for higher-rate taxpayers
  • 39.35% for additional rate taxpayers.

As corporation tax due on directors’ overdrawn loan accounts is paid at the dividend upper rate, this will also remain at 33.75%. 

Pension tax limits

This measure supports the government’s efforts to encourage inactive individuals to return to work, in particular those aged 50 and above, and it removes incentives to reduce hours or leave the labour market due to pension tax limits. The legislation will be introduced in Spring Finance Bill 2023 and will have effect from 6 April 2023. This will:

  • Increase the Annual Allowance from £40,000 to £60,000.
  • Increase the Money Purchase Annual Allowance from £4,000 to £10,000.
  • Increase the income level for the tapered Annual Allowance from £240,000 to £260,000.
  • Ensure that nobody will face a Lifetime Allowance charge.

The legislation will be introduced in a future Finance Bill to remove the Lifetime Allowance from pensions tax legislation.

If you would like to discuss how this will affect you, please contact us by calling 0115 928 3228 or by emailing info@coalesco.co.uk.

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