2023/24 tax brackets revealed - how much will you pay?

Tax years run from 6^th April one year to 5^th April the next. Each year, rates of tax can change as can the various limits and allowances that help reduce the amount you pay. Here’s a handy round up of what to expect from next tax year (2023/24).

2023/24 tax brackets

1. Income tax

You pay income tax at the rates applicable to the parts of your earnings that fall within several brackets or ‘bands’. In the Autumn Statement last November, the Chancellor announced these income tax thresholds would be frozen for even longer, until April 2028, with the 45% ‘additional rate’ band reduced from £150,000 to £125,140. This means people will pay more tax as their wages rise.

The income tax rates for 2023/24 are therefore:

• Basic tax rate at 20%: Up to £37,700
• Higher tax rate at 40%: From £37,701 to £125,140
• Additional tax rate at 45%: Above £125,140

The income tax Personal Allowance, on which no tax is paid, remains at £12,570 per year. This is reduced for those earning over £100,000. For every £2 that you earn above £100,000, the Personal Allowance reduces by £1. This means if you earn £125,140 or more, your personal tax allowance is zero.

Please note rates of income tax on earned income are different in Scotland, with the higher and top rates of tax increasing by 1% to 42% and 47% respectively for the new tax year:

• Starter tax rate at 19%: Up to £14,732
• Basic tax rate at 20%: From £14,733 to £25,688
• Intermediate tax rate at 21%: £25,689 to £ 43,662
• Higher tax rate at 42%: From £43,663 to £125,140
• Additional tax rate at 47%: Above £125,140

2. Dividend income tax rates and dividend allowance

For all UK taxpayers the first slice of dividend income in each tax year requires no additional payment of tax – this is known as the Dividend Allowance. For the 2023/24 tax year it is £1,000, half of what it was in 2022/23, and it is set to fall further to £500 in 2024/25.

Dividends received above this allowance are taxed according to which rate of income tax you pay. You can work out which tax band you’re in by adding the total amount of your dividend income to your other income in the same tax year. The income tax rates on dividends are as follows:

• Basic rate taxpayers 8.75%
• Higher rate taxpayers 33.75%
• Additional rate taxpayers 39.35%

The Dividend Allowance is separate to the income tax personal allowance described above and the personal savings allowance (see below). Dividends from shareholdings outside of an ISA or pension and in excess of your personal and dividend allowances are taxable.

For those interested in the topic, I've also written guidance on investing with dividends - or you can follow the link for more information on UK dividend tax rates.

3. Personal savings allowance and starter rate for savings

The personal savings allowance grants every basic-rate taxpayer £1,000 of savings income free from income tax, with higher-rate taxpayers receiving a £500 allowance. Additional-rate taxpayers on the top 45% income tax rate receive no allowance.

Interest from sources that are already tax free, such as assets held in ISAs and Premium Bond 'winnings', don’t count towards the allowance. Yet some investments do, including holdings of gilts and corporate bonds, as well as unit trusts, OEICs and investment trusts that invest predominantly in bonds and pay interest as opposed to dividend income.

For lower earners, there is a starter rate for savings of up to £5,000 a year on which no tax is payable if other income is less than £17,570 that tax year. Every £1 of other income above the Personal Allowance reduces the starting rate ‘band’ by £1.

4. Capital Gains Tax allowance

The capital gains tax ‘annual exempt amount’ is the maximum profit you can make on selling or disposing of assets without paying capital gains tax. The allowance is £6,000 for the 2023/24 tax year, slashed from £12,300 in 2022/23.

The rates payable on Capital Gains Tax are 10% basic rate and 20% higher rate, but on residential property (other than your own home) the rates are 18% and 28% respectively. Your rate of capital gains tax will depend on your other taxable income. See the HMRC website for more information.

5. ISAs

Next tax year’s (2023/24) ISA allowance remains at £20,000. It is available to UK residents over 18, the main options being a Cash ISA and a Stocks and Shares ISA. You can split your allowance between these if you wish, the stipulation being that you can only contribute through one provider of each type of ISA each tax year. Charles Stanley only offers Stocks and Shares ISAs.

Investments in an ISA are sheltered from capital gains tax and income tax. By investing early in the tax year you have up to a year’s worth of extra income and growth potential – though your investment could fall over this period rather than rise. Remember, annual ISA allowances cannot be carried forward and used retrospectively.

ISA

6. Junior ISAs

The Junior ISA (JISA) allowance remains at £9,000 in 2023/24. A parent or legal guardian of an eligible child can open a Junior Stocks & Shares ISA, manage the account and make the investment decisions. Grandparents, relatives or family friends can then also contribute at any time up to the annual investment limit.

Junior ISA

7. Pensions

Following the Spring Budget, the maximum that can be contributed to all your pensions (known as the 'annual allowance') is £60,000 in 2023/24, an increase from £40,000 in the prior tax year. Income tax relief on personal contributions is also generally limited to 100% of your relevant UK earnings for the tax year.

Currently, an investor can receive up to 45% tax relief when they make a personal contribution to a personal pension such as a SIPP, with 20% tax relief paid by the HMRC to the pension and any higher and additional rate tax relief reclaimable. Please note rates of tax and pension tax relief for Scottish taxpayers is slightly different from the rest of the UK.

Subject to sufficient earnings in the tax year, individuals contributing to a pension, including SIPPs, are able to carry forward and contribute unused annual allowances from the three previous tax years.

For people who receive taxable ‘flexible’ retirement benefits, such as income or lump sums from pension drawdown, a lower annual allowance applies known as the Money Purchase Annual Allowance or MPAA. Having been £4,000 previously, this rises to £10,000 from the 2023/24 tax year.

For high earners, the annual allowance is reduced on a gradual basis down to a minimum of £10,000 in 2023/24, an uplift of from £4,000 in 2022/23, but this is only a concern for those whose earnings and income are, very broadly, over £200,000 a year – for more information refer to the HMRC website here.

It remains possible for non-taxpayers to benefit from pension tax relief to a limited extent. Eligible individuals under age 75 can contribute up to £2,880 to a pension and receive tax relief of £720, resulting in a total contribution of £3,600 irrespective of earnings.

The cap on the total value of your pensions from which you can draw benefits without triggering a tax charge (known as the Lifetime Allowance) is being abolished following a surprise move in the recent Spring Budget. Anything over the cap (£1,073,100 for the 2022/23 tax year) is taxed at much higher rate, 55% for lump sum withdrawals. The cap will be abolished from April 2024, with the charge abolished from April 2023.

SIPP

8. Inheritance Tax

Inheritance tax continues to be charged at 40% of a person’s estate above a tax-free allowance – also called the nil-rate band – of £325,000. In the Autumn Statement in 2022, the Chancellor extended a freeze on the inheritance tax (IHT) threshold until April 2028.

It means more people will have to pay IHT as a greater number of estates tip over the tax threshold, thanks largely to rising house prices. Careful planning is often required, not just by the wealthy but numerous families who consider their situation quite ordinary and might not anticipate the impact. Try our IHT calculator to find out how much tax your beneficiaries might have to pay, or speak to our planners to explore how we can help you find efficient ways to pass on your wealth to others.

Inheritance tax calculator

The tax treatment of pensions depends on individual circumstances and may be subject to change in future.