We are all aware that both the main income tax threshold and allowances have been frozen at the 2021-2022 levels until 2026. However, this has now been extended to the 6th of April 2028. Currently, for 2023-2024, the rates have remained unchanged at 20%, 40% and 45%.
Those in England, Wales and Northern Ireland will begin paying 40% tax on income over £50,270. Currently, the higher 45% tax rate is applied to income over £150,000. However, from the 6th of April 2023, this will now be lowered to £125,140. This is the level at which a taxpayer’s personal allowance will have reduced to zero.
How Will Income Tax Change?
The freeze or reduction in income tax thresholds and allowances, paired with inflation of over 11%, means that many more people will fall into the higher tax rate bracket every year. The moment that a taxpayer’s income reaches the 40% band, their personal savings allowance (the amount of interest that is tax-free) will drop from £1,000 to £500 per year. Those who pay a 45% tax, on the other hand, will have no personal savings allowance.
Taxpayers who reside in Scotland pay income tax on their earnings, profits and rental income at different rates and from different thresholds to the rest of the UK. However, their capital gains, savings and dividends are all at the same rate. On the 15th of December 2022, the Scottish government are set to announce the income tax rates for 2023-2024.
The threshold for high-income child benefits will not change and will remain at £50,000. However, families whose higher earner has a total relevant income over £50,000 will have some of their child benefits clawed back. This catches some people whose highest marginal rate is only 20%.