How much tax will you pay from April 2023?

A series of allowance freezes and tax increases were announced by chancellor Jeremy Hunt back in November as part of his Autumn Budget. 

In his Spring Budget, the chancellor announced several further changes as the country struggles with the rising cost of living amid rampant inflation. 

We have broken down the entire Spring Budget and what it means for your finances – but more specifically, what does it mean for your taxes? 

We take a look at the changes below ahead of the new tax year starting April 2023. 

ISA savings allowance remains frozen

There will be no inflation-linked increase for the annual ISA tax-free savings allowance. It will remain frozen at £20,000 for the 2023/2024 tax year. 

The limit has been frozen since 2017. If it had been increased along with inflation it would have risen to just over £22,000 for the next tax year. 

Investors looking to protect their income from the taxman might want to look into a Bed and ISA to make sure they’re making the most out of their investments. 

There is some good news however – the rates on the best easy access and notice ISAs are at their highest since 2009.

Corporation tax – how much will you pay?

Business owners are facing a steep increase in tax. From April it will go up from 19% to 25% for companies with over £250,000 in profits. 

But in his Budget Hunt also announced a new scheme that will allow businesses to deduct money invested in equipment from taxable profits. 

Hunt added only 10% of businesses would pay the full rate and estimated the equipment expensing policy was equivalent to a corporation tax cut worth £9bn a year. 

Income tax – how much will you pay?

In a bid to get more from those who earn more, Hunt lowered the threshold at which the 45% tax rate kicks in. The 45% rate of income tax previously applied to anything earned over £150,000. From April, the 45% tax will be charged on anything over £125,140. This will remain the case until 2028. 

The 20% income tax rate, paid on anything earned over £12,570, and the 40% income tax rate, which kicks in at £50,270, will also be frozen for the next six years. 

Here’s what you can expect to pay from April 2023 if you earn over £150,000.

Source: AJ Bell

In September “the wealthiest were celebrating the abolishment of the additional rate of tax, they are now being forced to share in the pain of tax hikes, with the threshold at which that 45% rate kicks in being lowered from £150,000 to £125,140. The move will cost someone on £150,000 almost £1,250 a year extra in tax – putting an extra 2% on their total tax bill,” Laura Suter, head of personal finance at AJ Bell, said.

“The reason the government plumped for the strange figure of £125,140 rather than just a straight £125,000 is so that the tax threshold aligns with the personal allowance taper, whereby anyone earning more than £100,000 starts to lose their tax-free allowance. By £125,140 the entire personal allowance is lost,” she adds.

Capital gains tax

Capital gains tax is tax paid when you sell something that has increased in value such as shares and property. The threshold at which you start paying capital gains tax has been cut, meaning you keep less of your gains and more to the tax man.

For the 2023 to 2024 tax year investors will have to pay capital gains tax on anything over £6,000 – over half the current £12,300 threshold. This will decrease again in the following tax year, April 2024, to £3,000. 

The move will mean that investors will pay an extra £25m in tax from next year and another £275m the year after.

For a basic tax rate payer with gains over the current tax-free limit this means an additional cost of £630 from next year, while an additional rate payer will be paying £1,260 more in tax. 

This is an extra £930 for a basic-rate taxpayer the year after, or £1,860 for a higher-rate payer.

If you’re selling a property that is not your main residence, the change means in 2024, a higher-rate taxpayer would face an extra £2,604 a year in tax for selling a second home and a basic-rate payer would pay £1,134 more in tax.

“Anyone who hasn’t used their current capital gains tax allowance could consider cashing in gains before the tax-year end in April. Anyone with ISA allowance remaining this year can use a process called Bed-and-ISA to sell investments up to the maximum gain of £12,300 and rebuy them within their ISA. This means they will be protected from Capital Gains Tax in future years,” Suter said.

How much extra CGT will you pay? 

Source: AJ Bell. (Figures assume your gains are higher than the current tax-free allowance of £12,300)

Dividend tax

The tax free allowance for dividend allowances has also been cut, again meaning more for the tax man and less for you. 

Currently it’s £2,000 - meaning you pay no tax on your dividends under that amount. From April 2023 however, it will fall to £1,000 and then from April 2024, it is £500.

Currently, if you earn £5,000 a year from dividends you’d have to pay tax of £1,181. From April 2023 that figure will rise to £1,574. 

According to AJ Bell, someone with a portfolio of £20,000 that yields 5% a year will hit the lower tax-free allowance of £1,000 from April next year, while someone with a portfolio of £10,000 that yields 5% a year will hit the tax-free allowance of £500 from 2024.

To shield your income from the tax man, moving it to an ISA or pension may make sense; if you do, move your investment that pay the highest dividends first to maximise what you keep.

Dividend tax changes – additional tax

Source: AJ Bell. Calculations assume annual dividends of £2,000 or more.