The Chancellor, Jeremy Hunt, has announced sweeping tax changes in his Autumn Statement which will come into force in the new tax year.
From April 2023 the threshold at which people pay the additional rate of income tax, charged at 45%, will be lowered from £150,000 to those earning over £125,140. The change will mean 250,000 extra workers will pay tax at the highest rate.
Mr Hunt also announced that he will be freezing the income tax personal allowance, higher rate threshold and main national insurance thresholds until April 2028, which is likely to push millions of people into a higher tax band in the coming years.
The amount you can earn before capital gains tax and dividend tax is charged will also be reduced from 2023-24.
Here, Which? explains all the major tax changes that could impact your money from April.
- Find out more: what the Autumn Statement means for your money
Income tax rates and thresholds in 2023-24
In the days leading up to the Autumn Statement, the Chancellor made clear that widespread tax rises would be needed to improve the UK's public finances.
Today, he announced that those earning more would be asked to contribute more by lowering the threshold for the additional rate of income tax to £125,140.
Mr Hunt said lowering the additional rate means someone earning £150,000 will pay an extra £1,200 in income tax per year.
The Chancellor also announced that the current tax threshold freezes - imposed by Sunak when he was chancellor - will be extended another two years until April 2028.
With thresholds failing to rise in line with salaries, this would cause millions of people to end up falling into a higher tax band.
Here's what the current tax thresholds for England and Northern Ireland look like compared to the new ones coming in 2023-24.
| Band | Tax rate | Taxable income 2022-23 | Taxable income from April 2023 until April 2028 |
|---|---|---|---|
| Personal allowance | 0% | Up to £12,570 | Up to £12,570 |
| Basic rate | 20% | £12,571 - £50,270 | £12,571-£50,270 |
| Higher rate | 40% | £50,271 - £150,000 | £50,270-£125,140 |
| Additional rate | 45% | Over £150,000 | Over £125,141 |
What about Wales and Scotland?
While taxpayers in Wales currently have the same rates and thresholds as those in England and Northern Ireland, income tax in Wales has been devolved to the Welsh government since 2019, so this could change in the future. Wales will publish its budget on 13 December.
Scottish income tax rates are different to the rest of the UK; there are more tax bands where taxpayers pay different rates, and the thresholds are also different. The Scottish budget will be published on 15 December.
- Find out more: all our income tax advice
National Insurance in 2023-24
The were no changes to National Insurance that employees pay.
Last year, Boris Johnson announced the health and social care levy, which saw National Insurance (NI) contributions rise by 1.25 percentage points in April to raise funds for the NHS and to tackle the social care crisis.
The move was controversial, and was reversed under Kwasi Kwarteng's mini-budget in September.
Since 6 November, the rate employees pay on earnings between £12,570 and £50,270 dropped back down to 12%, from 13.25%. While those with earnings above £50,270, now pay 2% down from 3.25%. The Treasury at the time said this will make 28 million people £330 on average better off next year.
- Find out more: all our National Insurance advice
Other tax announcements
The Chancellor also targeted other taxes in his speech.
Council tax bills could rise by 5% next year
Mr Hunt also said he wanted to provide 'greater flexibility' to local authorities on council tax.
Currently, local authorities in England are only able to raise council tax by a maximum of 2.99% (comprising a 1.99% council tax rise and an additional 1% precept for social care) without the need to hold a referendum.
From April 2023, local authorities will be able raise council tax by up to 3% and areas with social care responsibilities will be able to increase the adult social care precept by up to 2%.
This means your council tax bill could increase by 5% next year, including the social care precept, without it going to a referendum. It means band D council tax could rise from an average of £1,966 to as much as £2,064.
- Find out more: council tax bands explained
Inheritance tax threshold frozen
Everyone in the 2022-23 tax year has a tax-free inheritance tax allowance of £325,000 – known as the nil-rate band. The allowance has remained the same since 2010-11 and will continue until at least April 2028.
The standard inheritance tax rate is 40% of anything in your estate over the £325,000 threshold.
IHT raised £6.1bn for the Treasury in the last tax year so it plays a big part in plugging the shortfall in public finances.
- Find out more: inheritance tax explained
Capital Gains Tax allowance to fall to £3,000
The Capital Gains Tax or CGT is charged on the profits you make from selling an asset, such as a second property or valuable possession.
The CGT allowance, which is the amount you can make before paying CGT, had been frozen at £12,300 until 2025-26, but will be cut to £6,000 in the new tax year, and then to £3,000 from April 2024.
The CGT rates that apply after the tax-free allowance will remain the same.
- Find out more: Capital Gains Tax allowance changes explained
Dividend tax allowance to fall to £500
The Chancellor has also said the dividend tax allowance will be cut from £2,000 to £1,000 from April 2023, and then to £500 from April 2024.
The rates of dividend tax will remain the same.
- Find out more: dividend allowance changes explained
source https://www.which.co.uk/news/article/chancellor-announces-major-income-tax-changes-in-his-autumn-statement-aAt7W2V7Uqsc