By Kevin PeacheyCost of living correspondentApril 6, 2023
Updated April 6, 2023
image source, Getty Images
Meanwhile, a new tax year has begun with calls for people to be “diligent” with their finances because of tax, pension and benefits regulations.
Frozen income tax thresholds mean that millions of people could be pulled into a higher tax bracket or have a larger portion of their paychecks taxed.
But on Monday, the AOW and numerous benefits will go up by 10.1%.
Prices also continue to rise, particularly the cost of groceries, although the rate of increase is expected to slow later in the year.
“As it remains a daily struggle for many to keep up with rising prices, personal financial considerations in the new tax year can easily be overlooked,” said Myron Jobson, an analyst at investment platform Interactive Investor.
“Hoping for the best and preparing for the worst remains a diligent approach to finance.”
Income tax rules
Income tax brackets — or thresholds — are frozen until 2028. That means any kind of pay raise could drag you into a higher tax bracket or tax a larger portion of your income.
If the thresholds had risen in line with inflation, someone earning £30,000 would have paid £398 less in tax in the coming year, according to Interactive Investor.
The Office for Budget Responsibility – which independently reviews the government’s economic plans – estimated that freezing thresholds until 2028 will bring in an additional 3.2 million new taxpayers. It said 2.6 million people would pay more taxes.
In England, Wales and Northern Ireland, you start paying income tax on annual income over £12,570, at 20%. You then pay 40% tax on income over £50,270 per annum.
The Chartered Institute of Taxation says someone with an annual income of £50,000 will pay an additional £63 in tax in the coming year.
Anyone earning £150,000 in Scotland will pay an extra £2,432 compared to last year, which will be £3,857 more than someone earning the same salary elsewhere in the UK.
Across the UK, the threshold at which the highest earners start paying the very highest rate of tax has fallen from £150,000 to £125,140.
Higher pension and benefits such as universal credit
The new tax year also brings with it a significant increase in state pensions and a host of working-age benefits — though technically it’s Monday that the higher rates take effect.
They rise by 10.1%, in line with the rising price level.
For the AOW, paid to people over 66, the change means that the amount received from Monday:
£203.85 per week (from £185.15) for the full, new lump sum AOW (for those reaching state pension age after April 2016) £156.20 per week (from £141.85) for the full , old state pension (for those who reached state pension age before April 2016)
Benefits rising include universal credit, which benefits nearly six million people, many of whom work. A single person receiving universal credit could get £400 more in the coming year than they did in the last 12 months, depending on their circumstances.
Neil Hugh, of savings and retirement group Standard Life, said: “It’s more important than ever for people to know what kind of support is available to them.”
He said some people didn’t know what benefits they were eligible for, or put off claiming because they thought they would be rejected, or that it would take too long.
The entitlement to benefits is also a gateway to living expenses payments, which could be worth hundreds of pounds and will resume later in April.
How to check if you are entitled to benefits
Changes in pension, dividend and capital gains tax
The tax-free limit for lifelong pension savings has now been abolished. The annual allowance has risen from £40,000 to £60,000 after being frozen for nine years. Those who already receive a pension but want to save more can now put in £10,000 a year, instead of £4,000.
The annual dividend payout – the amount of share dividend income on which you don’t have to pay tax – has been reduced from £2,000 to £1,000, with a further reduction to £500 in 2024-25.
So anyone who receives more than £1,000 a year in dividends will have to pay tax on the excess. You do not pay tax on dividends from shares in a Private Savings Account or pension funds. With an Isa you can save up to € 20,000 per year.
The tax-free allowance on capital gains made on the sale of assets such as a buy-to-let property has been reduced from £12,300 to £6,000.
Enough time to fill out a tax return
However, the deadline to submit online is the end of January next year.