As the new tax year 2022 commences, it’s a good time to look at the changes that have been introduced so that you can take full advantage of any new tax breaks that may be available to you.
Income Tax and National Insurance
The personal allowance – the amount of income you are allowed to earn before you start paying tax – remains at £12,570. The basic rate of income tax remains at 20%, and the higher-rate threshold, at which you start paying 40%, is £50,270. The additional-rate tax threshold, at which you pay 45%, is also unchanged at £150,000.
These tax thresholds have been frozen until 2026.
National Insurance contributions (NICs) have risen by 1.25% as of 6th April 2022, as the Health and Social Care Levy came into force. This means that many employees will pay National Insurance at 13.25%, bringing total salary deductions to 33.25%.
The NIC threshold has, however, been raised by £3,000 from July 2022, bringing it in line with the personal income tax allowance of £12,570.
The main Corporation Tax rate will remain at 19% for the new tax year 2022/23. For businesses with profits upwards of £250,000, the rate will increase to 25% from April 2023. At the same point, the rate for businesses with £50,000 in profit or less will remain at 19%, and those with profits between £50,000 and £250,000 will see their Corporation Tax rate rise slightly.
Dividends and savings
Through the Personal Savings Allowance, for the new tax year 2022-23, basic-rate taxpayers are able to carry on earning £1,000 interest on their savings before paying tax. Higher rate taxpayers have their allowance frozen at £500, whilst for additional-rate taxpayers, the allowance remains at zero. The dividend allowance has also remained unchanged at £2,000.
However, the rate of Dividend Tax has been increased by 1.25%, leaving company directors and investors handing over a higher proportion of their earnings. Basic rate taxpayers will now pay 8.75% on dividends as of the new tax year. For higher rate taxpayers it’s 33.75%, and for additional rate taxpayers it’s 39.35%.
The new tax year has brought no changes to pension allowances. The majority of people can claim tax relief on pension contributions up to £40,000 per tax year, or 100% of relevant earnings, whichever is lower.
This annual allowance reduces for individuals with an adjusted income above £240,000, and threshold income over £200,000. The minimum reduced annual allowance for this tax year is £4,000.
The lifetime allowance – the most may have in your pension pot before an extra tax charge becomes payable – usually moves up in line with inflation. However, for the new tax year 2022-23, it will remain frozen at £1,073,100 for 2022/23, and will stay that way until 2026.
Making use of allowances such as ISAs, as well as pensions, wherever possible, has now become even more important.
Individual Savings Accounts (ISAs)
For the new tax year, the ISA subscription allowance stays at £20,000. This applies to Cash ISAs and Stocks and Shares ISAs.
Ultra-low interest rates remain available on Cash ISAs, making Stocks and Shares ISAs the more attractive option for ISA savers currently.
The Junior ISA annual allowance has also been frozen at £9,000. These are a good way to give children a head start with their finances. Again, switching from a Cash to a Stocks and Shares ISA, given the low interest rates, could be a wise move.
The Inheritance Tax (IHT) nil-rate band for the new tax year 2022-23 remains at £325,000, and has been frozen until 2026. The additional residence nil-rate band, where main family homes can pass to direct descendants, remains fixed at £175,000.
Capital Gains Tax
Whilst it was widely anticipated that there would be changes to the Capital Gains Tax (CGT) regime, the annual exemption for individuals was frozen at £12,300 until 2026.
With both IHT and CGT regimes left intact for the time being, it could be a good time to take advantage of current allowances and plan around them.
Looking for financial advice this new tax year?
There is clearly a lot to consider as the new tax year 2022-23 gets underway. Allowance freezes and higher tax rates highlight the importance of seeking professional, tailored advice to help optimise your allowances and get the most out of your current plans.
At Partridge Muir & Warren, we have been providing financial planning services Surrey wide since 1969. We offer a comprehensive financial planning service, brought to you by a team of highly skilled chartered financial advisers, investment administrators, tax advisers and legal specialists, all dedicated to protecting your wealth, and helping you reach your all-important financial goals.
If you would like to discuss your current financial position this new tax year, you are welcome to get in touch.