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Tax Changes in April 2023

Tax changes in April 2023 at glance

There has been a number of changes that take affect from April 2023 that we briefly summarise as below:

Personal Tax

The additional rate threshold (ART) reduces to £125,140, so tax payers will pay income tax at the 45% on earnings over the ART.

The personal allowance of £12,570 is frozen until 2028.

Dividend Tax

Individuals have a dividend allowance each year which means they only pay tax on any dividend income above this dividend allowance.
The dividend allowance will reduce from £2,000 to £1,000 from April 2023, and to £500 from April 2024. The amount of tax you pay on dividends above the dividend allowance depends on your income tax band. For basic rate tax payers the rate is 8.75%.

National Insurance rates frozen until April 2028

The NIC primary threshold for employees and the Class 2 Lower Profits Threshold for the self-employed will both be frozen until April 2028. Employers generally start to pay 13.25% Class 1 Secondary NICs on their employees’ wages at £9,100.

Reduced Capital Gains Tax annual exempt amount

From April 2023, the Capital Gains Tax (CGT) exemption most individuals can claim will reduce from £12,300 to £6,000 and again to just £3,000 from April 2024. For anyone selling assets liable to CGT, they need to factor the additional tax which may arise from the reduction in the allowance.

Frozen Inheritance tax thresholds

The inheritance tax (IHT) nil-rate band of £325,000 will be frozen until April 2028. In addition, the residence nil-rate band will also be frozen at £175,000. The residence nil-rate band taper will be frozen at £2 million.

Corporation Tax

The main corporation tax rate will increase to 25% where profits exceed £250,000.

A new ‘small profits rate’ of corporation tax of 19% will apply where profits are £50,000 or less.

For companies whose profits range between £50,000 and £250,000, they will be eligible for marginal relief such that profits in the margin (falling between the upper and lower limits), will pay an effective rate of tax of 26.5%.

The upper and lower tax limits are reduced in proportion to the number of companies which are associated for tax purposes. Companies will be associated where one has control of the other, or where both are under common control.