The financial year runs from April 6 to April 5 the following year. That means that things like thresholds and allowances will reset today.

Income Tax: Headline rates remain the same at basic-rate (20%), higher-rate (40%), and additional rate (45%). However, the threshold for the top 45% rate has reduced from £150,000 down to £125,140.

This will see an increase in tax of just over £1,200 per tax year if you earn over £150,000. The tapering of the tax free Personal Allowance means those with earnings from £100,000-£125,140 are effectively paying tax at 60% on this portion of earnings.

Capital Gains Tax: The Capital gains tax allowance is being decreased from £12,300 to £6,000. From April 2024 it will be reduced again from £6,000 down to £3,000.

Capital Gains tax is payable on profits over that figure at 10% or 20%, plus an additional 8% if the gain is from residential property. This will bring more people into tax reporting and increase administration.

Tax-free Dividend Allowance: The dividend tax allowance is being cut from £2,000 to £1,000 – and like capital gains, will half again next year.

This will affect you if you hold income-paying shares outside of tax-wrappers like ISAs & Pensions, or are paid via dividends such as a Limited Company Director.

Inheritance Tax: The Nil Rate Band (the first £325,000 of your Estate not subject to Inheritance Tax) had been frozen until April 2026, meaning no increase with inflation.

This freeze has now been extended until April 2028, meaning more and more families will have taxable Estates over the next few years.

Pension annual allowance: The limit on the pension annual allowance has been raised from £40,000 to £60,000 – or 100% of your income if you earn less than £60,000. The annual allowance is how much you can save into your pension in the financial year before getting a tax charge.

The allowance covers all your private pensions combined, including private and workplace pensions.

Money purchase annual allowance

If you start to take money from a defined contribution pension pot, this may trigger the money purchase annual allowance (MPAA). This effectively replaces the annual allowance mentioned above, reducing how much you can save while still benefiting from tax relief.

The MPAA has today been increased from £4,000 a year to £10,000 a year.

Pension lifetime allowance

The lifetime allowance is a limit on how much you can save into pension schemes without having to pay extra tax. This had previously been £1,073,100. From today, the charge that would apply to funds over this amount will be removed.

However, the amount you can take as a tax-free lump sum is still based on 25% of the lifetime allowance and is capped at £268,275.

The lifetime allowance applies across all your pension pots.

Planning ahead

In the face of these changes, we have found many clients wanting to review their financial planning in more detail, taking stock after an unusual couple of years. It is more important than ever to consider the full range of options available.

• ISAs & pensions: help mitigate taxes associated with investments, but pensions also provide valuable income-tax relief. For higher earners Venture Capital Trusts or Enterprise Investment Schemes also offer income-tax relief.
• Inheritance Tax Planning: cannot be left until the last minute. The earlier you have the discussion, the more options are available: gifting to family directly or indirectly such as Junior ISAs or Junior Pensions for grandchildren, trust planning, Business Relief investments, donating to charity, or simply spending more!

If you have any questions on any of the information above, please do get in touch.