Tax changes from 1 April 2023
There have been various changes to tax rates and tax-free allowances following the Autumn Statement in late 2022, and following the Spring Budget in 2023. The changes to tax rates discussed below are effective from 1 April 2023, and some of the changes are likely to affect most people.
The 2022/23 tax-free dividend allowance for each individual was £2,000 per year, which was reduced to £1,000 from 1 April 2023 and will be reduced further to £500 from 1 April 2024. This also coincides with an increase in the rate of corporation tax which was previously 19% in the 2022/23 tax year, now increasing to 25% from 1 April 2023.
In relation to capital gains tax, there is also a reduction in the tax-free allowance available for gains on disposals. The tax-free capital gains tax allowance in 2022/23 was set at £12,300 which is being reduced by more than half to £6,000 from 1 April 2023. This is also set to reduce further to £3,000 from 1 April 2024.
In relation to inheritance tax, each person has a Nil Rate Band (NRB) of £325,000 which they can leave tax-free on their death. There is also an additional Residence Nil Rate Band (RNRB) which has been effective since 2017, whereby you qualify for an additional £175,000 tax-free allowance on your death providing certain conditions are met, mainly that a property or interest in a property is left to direct descendants upon your death.
The current NRB rate has been in place since 6 April 2009 and the current RNRB rate has been in place since the 2020/2021 tax year. These allowances potentially provide up to £1M to be left by married couples with children free of inheritance tax. Although, following the recent announcements, it has been confirmed that the current rates of the NRB and RNRB have been frozen until April 2028.
There are many effective ways of estate planning that you can do during your lifetime to help reduce potential inheritance tax and capital gains tax, and if you are looking to explore your options in doing so then contact our Private Client department who would be able to advise and assist. You can contact Eleanor Holland at [email protected] or call 0121 733 8000.
