Welcome to Fusion Tax. With a once-in-a-century global pandemic mostly behind us and an impeding recession now looming, the Chancellor of the Exchequer has certainly been busy. Bleak economic conditions and a cost-of-living of crisis has facilitated a drastic change in the UK’s tax law, which was revealed in the Autumn Statement.
In short, the group hit hardest by the Chancellor’s Autumn Statement are going to be the higher earners and the owner-managed business owners. Watch the video below, or continue reading for an explanation of a few of the key tax changes to likely impact individuals the most.
Key tax planning points going into 2023/24
Additional Rate Band
From 6th April 2023, the threshold in which the 45% Additional Rate Band tax applies has been cut from £150,000 per year to £125,140. Using an example, for someone earning £150,000 per year during the 2022/23 tax year from their employment income is going to have an automatic income tax increase of £1,243 from 6th April 2023, before considering any of the other tax changes in the Autumn Statement.
This tax hike for higher earners now makes it more even enticing than ever for individuals to make larger pension contributions to Private Pensions or to increase their salary-sacrifice pension contribution through their workplace, to try and lower their taxable income going into the 2023/24 tax year.
Dividend Allowance
The Dividend Allowance from 6th April 2023 has been cut from £2,000 to £1,000 per year. From 6th April 2024 the Dividend Allowance will be cut again to £500 per year. This will make it more expensive, from a tax perspective, for business owners to take money out of their Limited companies. Furthermore, Directors/Shareholders may need to consider reducing the amount of dividends which are paid-out to shareholders at the end of each tax year to avoid paying income tax on their dividend distribution.
Capital Gains Tax
Another big change coming to investors is the reduction in the Capital Gains Tax allowance from £12,300 to £6,000 per year from 6th April 2023. A further reduction to the Capital Gains Tax allowance will take place from £6,000 to £3,000 from 6th April 2024.
Some good news, however, surrounding this reduction is that the Capital Gains Tax reporting threshold is still fixed at £50,000. Using an example again, if you were to sell a capital asset (such as stock in a publicly traded company) on 6th April 2023, and the proceeds are, say, £49,000 and the base cost was £49,000 – thereby having an overall chargeable gain of £0 (£49,000 – £49,000) – this disposal does not automatically require an individual to file a Self-Assessment tax return to report this disposal to HMRC.
The decreasing Capital Gains Tax allowance is lowering the chargeable gain investors can realise tax-efficiently at the end of the tax year. Furthermore, this widens the goal posts for individuals to start paying Capital Gains Tax on some of their small investments’ gains.
Employment Taxes
Company Car Tax percentages will increase by 1 percentage point for Electric Vehicles and the Ultra-Low Emissions Vehicles (ULEV) – which is defined as a car with a CO2 emission of less than 75g/km or less. The tax burden is slowly increasing for fuel-efficient and electric car drivers, which were previously taxed at preferential rates for taxpayers to receive. This may impact business owners who are looking to purchase a fuel-efficient or electric vehicle through their Limited companies to utilise this potential tax savings for owning a greener vehicle.
Register your free place for our upcoming webinar to learn more about these changes and how you should prepare for 2023.
