A guide to key rates, thresholds and allowances for the 2023/24 tax year:
- Section 1: Pay & income
- Section 2: Childcare & Child benefit
- Section 3: Assets & investments
- Section 4: Pensions
- Section 5: Business taxation
As the new financial year swings into gear, households across the UK are facing rising tax bills thanks to a range of frozen thresholds and allowances, as well as a lower earnings threshold for the additional rate of income tax.
So called ‘stealth taxes’ will squeeze middle earners particularly hard. Those pulled into the higher rate tax bracket thanks to ‘fiscal drag’ – the effect of tax thresholds remaining frozen while wages rise – will experience some of the most punishing increases to their effective tax rate. A larger number of higher earners will also find themselves paying the highest rate of income tax come payday this month, with those just under the cusp of the 45% tax bracket last year now facing an additional tax bill of over £100 a month even if their pay remains unchanged.
Likewise, investors are facing cuts to both the amount they can receive tax-free in dividends and capital gains each year, landing those with investments outside pensions and ISAs with bigger tax bills. Savvy individuals will use the new tax year to shelter savings using their £20,000 ISA allowance for 2023/24, as well as the newly increased £60,000 pension annual allowance.
However, some households will see inflation-matched income rises as the government attempts to help the most vulnerable households tackle the cost-of-living crisis. The new National Living Wage of £10.42 an hour applies from 1 April, meaning the lowest paid will see a 9.7% wage increase in this month’s payslip. Meanwhile the State Pension will surpass £10,000 a year for the first time thanks to the triple lock, with the new rate trickling through into pensioners’ pockets over the coming weeks.
For more information about tax, pensions, investments and household finances, full contact details for AJ Bell spokespeople can be found below.
Household finances in 2023/24:
Income Tax
The personal allowance, basic rate and higher rate tax thresholds are frozen for 2023/24. The additional rate threshold will be cut to £125,140.
|
|
2022/23 |
2023/24 |
|
Personal allowance |
£12,570 |
£12,570 |
|
Basic rate (20%) threshold |
£12,571-£50,270 |
£12,571-£50,270 |
|
Higher rate (40%) threshold |
£50,271-£150,000* |
£50,271-£125,140* |
|
Additional rate (45%) threshold |
Above £150,000* |
Above £125,140* |
*The personal allowance is completely extinguished once earnings reach £125,140, with £1 of the personal allowance lost for every £2 of ‘adjusted net income’ above £100,000. This means there is a higher effective tax rate of 60% on earnings of £100,000-£125,140.
National Insurance (NI)
NI contribution thresholds are also frozen for the 2023/24 tax year.
|
|
2022/23 |
2023/24 |
|
Lower earnings limit (no NI) |
£6,396 |
£6,396 |
|
Primary threshold (12%)* |
£12,570-£50,270 |
£12,570-£50,270 |
|
Upper earnings limit (2%)** |
Above £50,271 |
Above £50,271 |
*The NI primary threshold was increased during the 2022/23 tax year, increasing from £9,880 to £12,570 from 6 July 2022 onward.
**Employee NI was subject to an additional 1.25% (13.25% and 3.25%) during the 2022/23 tax year, up until 6 November 2022 onward, where rates reverted to 12% and 2%.
Minimum wage
New rates took effect from 1 April 2023. The increase amounts to a 9.7% increase in the National Living Wage (NLW) for those aged 23 and over. 21-22 year olds receive an increase of 10.9%, with the intention that they be brought into scope of the full NLW in 2024.
It is estimated that the NLW will need to increase to between £10.90 and £11.43 in 2024 to meet the government’s target of two thirds of median pay (source: Low pay commission)
|
|
2022/23 |
2023/24 |
|
National Living Wage |
£9.50 |
£10.42 |
|
21-22 yr old |
£9.18 |
£10.18 |
|
18-20 yr old |
£6.83 |
£7.49 |
|
Under 18 |
£4.81 |
£5.28 |
|
Apprentice |
£4.81 |
£5.28 |
Section 2: Child benefit and childcare
Child benefit
Payable to households with children aged under 16, or under 20 if they remain in education, child benefit is increased for 2023/24. Parents registered for child benefit can receive National Insurance credits, meaning they obtain qualifying years for the state pension.
|
|
2022/23 |
2023/24 |
|
Eldest or only child |
£21.80 pw (£1,133.60 pa) |
£24 pw (£1,248 pa) |
|
Other children |
£14.45 pw (751.40) |
£15.90 pw (£826.80) |
Child benefit high income tax charge
The high income child benefit charge is applied where child benefit is claimed and one or both parents have an income over £50,000. Child benefit is withdrawn at a rate of 1% for each £100 of earnings over £50,000, meaning eligibility for child benefit is lost entirely where one partner earns £60,000 or more. The earnings threshold remains frozen for 2023/24 and is unchanged since its introduction in 2013.
|
|
2022/23 |
2023/24 |
|
High income charge threshold |
£50,000 |
£50,000 |
‘Free’ hours
Working parents of children aged three to four are currently eligible for 30 hours free childcare during term time. Minimum earnings requirements apply, while families are ineligible if one or both partners have earnings over £100,000.
The scheme will be extended gradually, beginning in April 2024, but remains unchanged for the 2023/24 financial year. The full 30 hours is due to be brought in for children as young as nine months from September 2025.
Tax-free childcare
Using a Tax Free Childcare account, parents can obtain a £2 government top-up for every £8 paid in. The government payment is equivalent to basic rate tax relief and capped at a maximum £2,000 per year per child, or £4,000 for disabled children.
The scheme remains unchanged for 2023/24.
Section 3: Assets and investments
ISAs
All ISA annual subscription limits remain frozen at the current level and the Lifetime ISA bonus remains at 25%.
|
|
2022/23 |
2023/24 |
|
ISA (adult cash/stocks & shares*) |
£20,000 |
£20,000 |
|
Junior ISA |
£9,000 |
£9,000 |
|
Lifetime ISA** |
£4,000 |
£4,000 |
|
Innovative Finance ISA |
£20,000 |
£20,000 |
*Over 18s can subscribe up to £20,000 to ISAs. Over 16s can subscribe up to £20,000 to cash ISAs only and/or £9,000 to a JISA.
**LISAs can only be opened by those aged 18-39 and subscriptions can be made up until age 50
Dividends
The dividend allowance is halved to £1,000, costing investors up to £393.50 in additional tax. It will be halved again to £500 in 2024. An FOI request submitted by AJ Bell indicates an additional 1.8 million people will pay tax on dividends because of the changes (Source: AJ Bell FOI)
Dividend tax rates were increased by 1.25% from 6 April 2022, aligned to the ‘Health and Social Care Levy’ applied to National Insurance (NI). Although the NI increase was subsequently reversed, and the September mini-Budget originally proposed reversing the hike in dividend rates from April 2023, the additional 1.25% added to dividend tax rates remains. Rates were 7.5%, 32.5% and 38.1% respectively at the basic, higher and additional rates up until 5 April 2022. From 6 April 2022 rates were increased by 1.25% to 8.75%, 33.75% and 39.35% and remain at that level for 2023/24.
|
|
2022/23 |
2023/24 |
|
Dividend allowance |
£2,000 |
£1,000 |
Capital Gains Tax
The Capital Gains Tax (CGT) allowance has been more than halved from £12,300 to £6,000. It will then be halved in April 2024 to £3,000.
CGT rates are charged at the following rates, which remain the same from 2022/23:
- Basic rate taxpayers: 10% or 18% for property (excluding main residence)
- Higher & additional rate taxpayers: 20% or 28% for property (excluding main residence)
|
|
2022/23 |
2023/24 |
|
CGT allowance |
£12,300 |
£6,000 |
Stamp Duty (property)
Rates and thresholds remain at the same level set at the mini-Budget in September 2022. Effective from 23 September 2022, the changes set the stamp duty threshold at £250,000, up from £125,000, saving buyers up to £2,500. Jeremy Hunt subsequently made the changes temporary, with the threshold reverting to £125,000 from April 2025. An further 3% on top applies to those buying an additional property. First time buyers are eligible for first time buyer’s relief, with no stamp duty charged on the first £425,000, provided the property costs less than £625,000.
|
|
2022/23 |
2023/24 |
|
Up to £250,000 |
Nil |
Nil |
|
£250,001 to £925,000 |
5% |
5% |
|
£925,000 to £1.5 million |
10% |
10% |
|
Above £1.5 million |
12% |
12% |
Personal Savings Allowance
The amount of savings interest that can be earned tax free remains frozen. Rising interest rates on cash are likely to see many more households facing tax on cash interest as a result.
|
|
2022/23 |
2023/24 |
|
Basic rate taxpayer |
£1,000* |
£1,000* |
|
Higher rate taxpayer |
£500 |
£500 |
|
Additional rate taxpayer |
£0 |
£0 |
*Individuals with income below £17,570 can receive up to £5,000 of interest tax free under the starting rate for savings. Every £1 of income above the £12,570 personal allowance reduces the starting rate for savings by £1.
Inheritance Tax
IHT: The tax-free threshold remains frozen for 2023/24 at £325,000.
Levied on estates on death Inheritance Tax (IHT) is charged at 40% of the value of the individual’s estate over the £325,000 nil rate band. The nil rate band is transferable between spouses, giving married couples a combined £650,000 free of IHT.
Residence nil rate band (RNRB): An additional £175,000 tax-free exemption enables married homeowners to benefit from a total £1 million IHT exemption. The RNRB remains frozen for 2023/24.
State pension
The state pension is increased in line with September 2022 inflation figures, taking the full flat-rate state pension to more than £10,000 per year. A manifesto commitment at the last general election, the future of the triple lock is likely to remain a topic for debate as we approach another election next year.
|
|
2022/23 |
2023/24 |
|
Full flat-rate state pension |
£185.15 |
£203.85 |
|
Basic state pension |
£141.85 |
£156.20 |
Pension credit
The minimum guaranteed income paid to low-income pensioners is also increased:
|
|
2022/23 |
2023/24 |
|
Single |
£182.60 |
£201.05 |
|
Couple |
£278.70 |
£306.85 |
Annual Allowance
The annual allowance will increase by 50%, to £60,000.
|
|
2022/23 |
2023/24 |
|
Annual Allowance |
£40,000 |
£60,000 |
Lifetime Allowance
The Lifetime Allowance (LTA) remains for 2023/24, although LTA tax charges for accessing benefits above the LTA are abolished. The LTA itself will be abolished in April 2024, with legislation to follow.
|
|
2022/23 |
2023/24 |
|
Lifetime Allowance |
£1,073,100 |
£1,073,100 (but LTA tax charges abolished) |
Money Purchase Annual Allowance
The Money Purchase Annual Allowance (MPAA) has been restored to its original level, £10,000.
|
|
2022/23 |
2023/24 |
|
MPAA |
£4,000 |
£10,000 |
Tapered Annual Allowance
The Tapered Annual Allowance reduces the available annual allowance for those who have income exceeding both the ‘adjusted income’ and ‘threshold income’. Adjusted income refers to all income, including bonuses, plus any pension contributions. Where this is over £260,000 individuals must check their threshold income, which allows for certain deductions to determine whether the individual is subject to the taper.
The minimum Tapered Annual Allowance will increase to £10,000, while the ‘adjusted income’ limit will increase to £260,000. The ‘threshold income’ limit remains unchanged at £200,000. Under the Tapered Annual Allowance, for every £2 of adjusted income over this threshold, the individual’s annual allowance is reduced by £1. The maximum reduction will be £50,000, thus reducing the annual allowance to £10,000 for anyone with adjusted income of £360,000 or above.
|
|
2022/23 |
2023/24 |
|
Adjusted income limit |
£240,000 |
£260,000 |
|
Threshold income limit |
£200,000 |
£200,000 |
|
Minimum tapered allowance |
£4,000 |
£10,000 |
Section 5: Business taxation
Corporation tax
Effective from 1 April 2023, the rate of corporation tax is increased to 25%.
|
|
2022/23 |
2023/24 |
|
Main rate |
19% |
25% |
|
Small profits rate (under £50,000)* |
- |
19% |
VAT
VAT remains unchanged at 20%.