The new year will bring new challenges and opportunities for many individuals. It will also see changes to the tax regime with more individuals likely to pay more in tax. Here are four taxes that individuals should watch in 2023.
Income tax
Individuals can expect to pay more income tax in 2023, with a greater number of individuals falling into the higher income tax brackets as wages increase.
The Chancellor in his November 2022 Autumn Statement announced a freezing of the personal allowance at £12,570 and the rate at which individuals fall into the higher rate tax bands (£50,271) until 2026. Individuals that earn over £125,140 will fall into a new additional 45% rate of income tax.
It should also be remembered that income tax is not just payable on a salary, but also on rental income and most savings and investments.
Tax on dividends
Individuals who receive an income from dividends on shares, investment trusts and funds should prepare to pay more tax.
Whilst the dividend tax rates remain unchanged, the tax-free allowance will be reduced from £2,000 to £1,000 in the tax year 2023/24 and to just £500 in the tax year 2024/25.
Dividend taxes do not apply to income from ISAs or pensions.
Capital Gains Tax
Whilst most individuals do not need to worry about capital gains tax – it is not charged in any increase in the family home – it should be on the radar for those that own, for example, a second home and are planning to sell.
The annual CGT allowance is to be halved from its current £12,300 in the current tax year to £6,000 in the tax year 2023/24 and £3,000 in the tax year 2024/25.
Couples can transfer assets to each other so they each benefit from the annual exemption. Remember that losses from the disposal or sale of qualifying assets can also be deducted from your total gains for the current year or carried forward to be offset against future gains.
Inheritance Tax
The Inheritance Tax (IHT) threshold has remained unchanged since 2009 despite repeated Conservative government manifesto promises. And with house prices increasing in London by 239% since 2000, more people than ever can expect to be caught in the IHT net in 2023.
IHT is charged at 40% on the value of your estate over £325,000. And whilst inheritance tax isn’t charged if your estate is left to a spouse or civil partner, that estate will be subject to IHT on their death.
The death of a loved one is always a difficult time and is made no easier when having to unravel and understand often complex family affairs. It is advisable to discuss the size of your estate with family members or advisers so steps can be taken to minimise any exposure to IHT.
What action should you take?
Everyone’s situation is different so it’s important to regularly review your arrangements and seek professional advice before taking any action. Speak to your tax adviser or contact our expert below. Alternatively drop us an email hi@hhllp.co.uk or call us on +44 (0)330 024 3200 and we’ll put you in touch with someone who can help.