The Spring Budget was announced on 15 March 2023, we have summarised the key aspects of the budget that relate to personal tax.
The personal allowance
The income tax personal allowance was already fixed at the current level until April 2026 and will now be maintained for an additional two years until April 2028 at £12,570.
The government will uprate the married couple’s allowance and blind person’s allowance by inflation for 2023/24.
There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. So there is no personal allowance where adjusted net income exceeds £125,140.
The marriage allowance
The marriage allowance permits certain couples, where neither party pays tax in the tax year at a
rate other than the basic rate (or intermediate rate in Scotland), to transfer £1,260 of their personal allowance to their spouse or civil partner.
Tax bands and rates
The basic rate of tax is 20%. In 2023/24, the band of income taxable at this rate is £37,700, so the threshold at which the 40% band applies is £50,270 for those who are entitled to the full personal allowance.
Once again, the basic rate band is frozen at £37,700 up until April 2028. The National Insurance contribution's upper earnings and profits limits will remain aligned to the higher rate threshold at £50,270 for these years.
From 6 April 2023, the point at which individuals pay the additional rate will be lowered from £150,000 to £125,140.
The additional non-savings and non-dividend income rate will apply to taxpayers in England, Wales, and Northern Ireland. The additional savings and dividend income rate will apply to the whole of the UK.
Tax on savings income
Savings income is income such as bank and building society interest.
The Savings Allowance applies to savings income, and the available allowance in a tax year depends on the individual’s marginal rate of income tax. Broadly, individuals taxed at up to the basic rate of tax have an allowance of £1,000. For higher-rate taxpayers, the allowance is £500. No allowance is due to additional rate taxpayers.
Savings income within the allowance still counts towards an individual’s basic or higher rate band and so may affect the rate of tax paid on savings above the Savings Allowance.
Some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. However, the rate is not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income, less allocated allowances and reliefs) exceeds £5,000.
Tax on dividends
Currently, the first £2,000 of dividends is chargeable to tax at 0% (the Dividend Allowance). This will be reduced to £1,000 for 2023/24 and £500 for 2024/25.
These changes will apply to the whole of the UK.
Dividends received above the allowance are taxed at the following rates for 2023/24:
- 8.75% for basic rate taxpayers
- 33.75% for higher-rate taxpayers
- 39.35% for additional rate taxpayers.
As corporation tax due on directors’ overdrawn loan accounts is paid at the dividend upper rate, this will also remain at 33.75%.
Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance.
To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.
If you have any queries about personal tax and would like to discuss it further, then contact us at 01623 490 120 or email