Personal Income Tax
Tax rates and allowances – 2023/24 (Table A)
The Autumn Statement included the announcement that the main personal allowance and the 40% threshold will remain at their 2022/23 levels until the end of 2027/28. This represents a tax increase where income rises from year to year. For example, a person with a salary of £50,270 would pay £7,540 in income tax in 2022/23; if their income increases by 10% to £55,297 in any of the years to 2027/28, all of the increase will be taxed at 40%, and they will pay £9,551.
The income level above which the personal allowance is tapered away remains £100,000; it will be reduced to zero when income is £125,140. For 2023/24, this is also the threshold for paying 45% tax (reduced from £150,000). For someone earning over £150,000 purely in salary, this represents a tax increase of £1,243. The amount varies if income includes dividends, which are subject to different rates.
The High Income Child Benefit Charge continues to apply to the higher earner of a couple where one receives Child Benefit and either of them has income of more than £50,000. The clawback of the benefit creates a high effective marginal rate of tax until it is all withdrawn once income reaches £60,000.
Scottish rates and allowances – 2023/24 (Table A)
The Scottish Parliament sets its own tax rates and thresholds for Scottish taxpayers for non-savings, non-dividend income. Up to 2022/23 the Scottish rates included a starter rate that was 1% below the basic rate in the rest of the UK, and intermediate, higher and top rates that were 1% above the rest of the UK equivalents. As shown in the table, the Scottish Budget in December 2022 increased the higher and top rates for 2023/24 by a further percentage point to 42% and 47%, and matched the rest of the UK’s cut in the top rate threshold to £125,140. The Welsh Government has similar powers for Welsh taxpayers, but has not varied the main UK rates.
The dividend allowance exempts some dividend income from tax, although it still counts towards the higher rate thresholds. For 2023/24, the allowance is reduced from £2,000 to £1,000, and it is to be reduced again to £500 for 2024/25. This increases the tax liabilities of those with dividend income above those levels, and will also require more people to file tax returns to declare those tax liabilities.
The tax rates on dividend income over £1,000 remain unchanged from the tax year 2022/23. The ordinary rate, paid by basic rate taxpayers, is 8.75%; the upper rate is 33.75% and the additional rate is 39.35%. These rates apply across the UK.
The 33.75% rate also applies to tax payable by close companies (broadly, those under the control of five or fewer shareholders) on ‘loans to participators’ that are not repaid to the company within 9 months of the end of the accounting period, where the loan is advanced on or after 6 April 2022.
The reduction in the dividend allowance and the increase in the tax rates increases the relative attractiveness of holding shares in a tax-free ISA or in a Venture Capital Trust. Dividends arising in an ISA or a qualifying VCT are not taxed and do not count towards the allowance.