Year End Tax Planning Series – Basics of Personal Tax Rates

With the UK tax year quickly flying towards us all, now is the time to get ahead of your admin duties if you want to alleviate any stress associated with personal accounting. This blog is the first within our new series of informative content designed to take the guesswork away from getting tax right.

Keep reading to learn about the basics of personal tax rates.

The ideal time to take stock

The run up to the end of the tax year on 5 April 2024 is a good time to make sure that your family and business finances are arranged in the best way possible.

The freeze of many tax rates and thresholds continues to increase the government’s tax take, but there are still many useful ways to arrange your affairs tax efficiently, and we provide an overview of some of these here.

Where you have discretion over the timing of income, for example, you can establish when that income is best taken — in this tax year or the next. A review before 5 April 2024 could therefore have a significant effect on your tax position. For Scottish taxpayers, to whom higher tax rates and thresholds apply, this is particularly true.

Each year brings its own tax challenges, and this year is no exception. Although the Autumn Statement 2023 was low on dramatic announcements, there are a number of important changes pre-dating this, which will take effect shortly. These will merit consideration as part of a year end review for many people, and include:

• further reduction to the capital gains tax annual exempt amount
• a further cut in the Dividend Allowance
• the introduction of basis period reform for unincorporated businesses.

As your accountants, we have the all-round vision of your circumstances that can really help make an impact, and we look forward to being of assistance.

Over the next few weeks we will publish details on different aspects of tax which we can help you navigate through.

Income Tax Rates For 2023/24

Income tax rates and bands for 2023/24 are determined by which part of the UK you live in, and what type of income you have.

Rates and bands: English, Welsh and Northern Irish taxpayers 2023/24

Taxable income is income in excess of the personal allowance. Non-savings income is broadly earnings, pensions, trading profits and property income.

Rates and bands: Scottish taxpayers 2023/24

Scottish taxpayers continue to pay tax on their savings and dividend income using the UK rates and bands.

Looking to the future, the position is set to become increasingly different for Scottish taxpayers, as underlined by the Scottish Budget proposals for 2024/25. If passed, these increase the Starter and Basic rate tax thresholds for those entitled to the standard personal allowance, so that they become £14,876 and £26,561 respectively. The Starter, Basic, Intermediate and Higher rates are to remain unchanged, as are the Higher rate threshold and Top rate threshold.

From 6 April 2024 there will be a new 45% Advanced rate of tax, applying to income over £75,000 and bringing the total of Scottish income tax bands to six. Finally, the Top rate of tax increases to 48% for income over £125,140.

The Personal Allowance

In principle, everyone is entitled to a basic personal allowance before any income tax is paid. This means that many people pay no income tax on the first £12,570 of income received. The personal allowance can be higher if you are eligible for the Blind Person’s Allowance. It is reduced for those with higher levels of income. Where an individual’s adjusted net income is more than £100,000, the personal allowance is reduced. It falls by £1 for every £2 of income above that limit, and by the time income reaches £125,140 or more, all personal allowance is lost. Timely planning can, however, delay the point at which this happens, or in some cases, mean the allowance is kept in its entirety.

Tip: Can You Retain the Personal Allowance?

Adjusted net income, broadly speaking, is total taxable income before personal allowances, but after some deductions such as pension contributions and Gift Aid. If you are in the £100,000 to £125,140 income bracket, additional pension contributions or payments under Gift Aid, can help preserve the personal allowance.

The Savings and Dividend Allowances

In some circumstances, you may be entitled to the Savings Allowance, with savings income within the allowance taxed at 0%. The amount of the allowance depends on your marginal rate of tax: that is the highest rate of tax to which you are subject. Basic rate taxpayers have a Savings Allowance of £1,000. Higher rate taxpayers have a Savings Allowance of £500. Additional rate taxpayers do not receive the Savings Allowance. The Dividend Allowance is available to all taxpayers, regardless of their marginal tax rate. This charges the first £1,000 of dividends to tax at 0%.

Savings and dividends received above these allowances are taxed at the rates shown in the table. Savings and dividends within the Savings Allowance or Dividend Allowance still count towards an individual’s basic or higher rate band. They may thus impact the rate of tax payable on income in excess of the allowances.

Some taxpayers may also be entitled to the starting rate for savings. This taxes £5,000 of interest income at 0%. This rate is not available if non-savings income is more than £5,000.

Tip: Dividend Allowance Is More Generous Before April 2024

The Dividend Allowance falls to £500 from 6 April 2024, but until then, it is £1,000. Dividend payment before 6 April 2024 gives access to the higher limit for 2023/24.

How Can Hysons Support Year End Tax Planning?

At Hysons, Chartered Accountants we offer business and personal accounting services to help anyone successfully navigate end-of-year taxes. Knowing your tax rates is an important part of this, which our team will explain clearly, along with offering any required support. Contact us today to learn more and to get prepared for April.