Big changes in tax bills coming from April could mean “millions of households will be worse off,” according to The Sun.
Income tax exemptions will be frozen in the new tax year, as will tax bracket thresholds, MoneyWeek explains. This means “significantly more people will have to pay higher and additional taxes” as wages slowly rise and push them into more expensive tax brackets.
The government’s “ongoing tax grab” means it’s “vital to take advantage of all your allowances before midnight on the evening of April 5,” Hargreaves Lansdown analyst Sarah Coles told Yahoo Finance.
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The problem is exacerbated as interest rates hit a 15-year high of 4.25%, the i-newspaper said, as inflation continued to rise, “probably leaving consumers facing the biggest increase in their bills in decades.” “.
Here are the main tax changes that could hit your wallet.
Income tax limits
Income tax is paid to HMRC based on your earnings in excess of your personal allowance. In England, Northern Ireland and Wales, up to £12,570 can be earned without paying tax, but a rate of 20% is applied to further annual earnings up to £50,270, then 40%.
These rates won’t change in April, but the allowances and thresholds will be frozen until 2028. And if you have tax thresholds that don’t grow with inflation or wage growth, you “will end up paying more tax on your income, especially if it puts you in a higher tax bracket.” , Which? said.
This phenomenon is known as fiscal hindrance. According to calculations by wealth manager Quilter, if wage growth averages 5% per annum over the next four years, but income tax thresholds remain frozen, an employee earning £50,000 today will be £2,643 worse off in the 2027-28 tax year. And in total they would be £6,463 poorer over the four-year period.
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Quilter has warned HMRC that nearly 1.5 million more people will be “dragged” into higher tax brackets by 2027-2028, MoneyWeek reported.
The rate of 45%
Higher earners paying the top tax rate of 45p per £1 will have to forgo even more of their income after Chancellor Jeremy Hunt used his autumn statement to lower the income threshold for this tax bracket. This was confirmed in its Spring 2023 budget.
At present, income is taxed at 40% from £50,271 to £150,000. But from April, the so-called additional tariff threshold drops from £150,000 to £125,140.
The change, which is expected to push about 250,000 taxpayers into the higher tax bracket, makes tax planning “even more important,” Paul Barham of Mazars tax firm told FTAdviser.
“If salary sacrifice is an option through your employer, consider using it to lower your taxable income or increase your retirement contributions,” he said.
Beyond income tax
At least there’s good news for those worried about their energy bills “going sky high,” the i-newspaper said, as Hunt said in his budget that the government’s energy price guarantee – which caps gas and electricity bills – is on the rise. current levels would remain at £2,500 through July amid falling wholesale costs.
The lifetime benefit limit on how much you can save for a pension will also be dropped from April to help get older workers, mainly senior NHS staff, back to work.
However, there are other changes coming into effect from April that could hit your budget. The amount you can earn before paying capital gains tax on the sale of assets such as a second home or stock outside of an Isa is “drastically reduced.” Which? said. The allowance drops from £12,300 to £6,000 in April and will be reduced again to £3,000 next year.
The tax-free allowance on dividends (payments to a company’s shareholders) will also fall, from £2,000 to £1,000, before being further reduced to £500 from April 2024.
Households could also face paying more council tax after Hunt changed the rules to give town halls “extra flexibility” to raise bills without a public consultation.
Entrepreneurs are facing a shock, added MoneyWeek, with a corporate tax increase from 19% to 25% for companies with more than £250,000 in profits. Hunt also announced a new scheme that allows companies to deduct money invested in equipment from taxable profits.
Ultimately, Larry Elliott said in The Guardian, this year may turn out to be “less dramatic” than 2022, but that “doesn’t mean life is getting any easier”.
Marc Shoffman is an award-winning freelance journalist specializing in business, real estate and personal finance. He has a master’s degree in financial journalism from City University and previously worked for the FT’s financial advisor, the financial podcast In For a Penny and MoneyWeek.