The UK has narrowly avoided a recession according to the latest reports, but UK households are still in for a tough time over the next 12 months.
The BBC reports that the National Institute of Economic and Social Research (Niesr) expects the economy to grow “marginally”. High inflation, the rising cost of borrowing, and soaring energy bills, though, mean that finding ways to protect – and ideally grow – your money will be key.
Keep reading for a look at how Globe IFA can help you to manage household spending and rising tax bills.
Energy bill help is set to become less generous from April
Few of the initiatives introduced during Liz Truss’s brief tenure in Number 10 survived very long under the new regime. One that did, though, is the Energy Price Guarantee.
Currently, the “guarantee” caps the cost of a single unit of energy to ensure that the average UK household will pay no more than £2,500 a year for their energy. This is around twice the amount households were paying in the winter of 2021/22.
The scheme will remain in place for the first quarter of 2024 but is set to become less generous from April 2023. The guaranteed average household bill will be capped at £3,000.
It is important to remember that the cap is on a single unit of energy and is based on average use. If you use more energy your bill could exceed the £3,000 “cap”.
If you would like help to budget for the year ahead – factoring in these rising costs while ensuring that your longer-term plans remain on track – contact us now.
Some tax-free allowances will fall from the start of the new tax year
Jeremy Hunt used his autumn statement back in November 2022 to announce £55 billion of “consolidation”.
This consolidation took the form of tax rises and spending cuts, and being aware of these should help you to better manage your wealth once the changes come into force on 6 April.
Dividend Tax
The Dividend Allowance is the amount you can earn from dividends before becoming liable for Dividend Tax. Currently, you can earn £2,000 before tax is paid but this is set to drop to just £1,000 in April 2023, and then to £500 in April 2024.
Tax on dividends that exceed the allowance is charged as follows:
If you pay yourself via dividends or receive any other dividend income, you will likely pay more tax from the 2023/24 tax year. You’ll need to factor these changes into your budget or speak to us to look at other ways to manage your income.
Capital Gains Tax
Another exemption due to fall over the next two years is the Capital Gains Tax (CGT) annual exempt amount. This is the amount of profit you can make on non-ISA investments before tax becomes due.
Rates vary from 10% to 28% depending on what the gain was made on. The exempt amount, meanwhile, will fall from £12,300 in the 2022/23 tax year to £6,000 from April 2023. It is due to fall again, to just £3,000, in April 2024.
Additional-rate Income Tax
A change to Income Tax bands means that you will start to pay the 45% additional rate of tax on earnings above £125,140. Previously, the 45% rate kicked in at £150,000.
With the current freeze on the Income Tax Personal Allowance and National Insurance thresholds both extended to 2028, you could see your tax bill rise sharply this year.
Measures like salary sacrifice might help to lower your tax bill as earnings rise.
Some of Rishi Sunak’s allowance freezes have been extended to 2028
Then-chancellor Rishi Sunak used his 2021 spring Budget to freeze certain allowances to 2026. Some of these freezes have since been extended to 2028.
The Inheritance Tax (IHT) nil-rate and residence nil-rate bands have both been frozen at their current levels until 2028. The nil-rate band stands at £325,000 (as it has done since April 2009) while the residence nil-rate band remains at £175,000.
These freezes could have a significant impact on the tax payable on death and mean that active estate planning is crucial if you are to leave a tax-efficient inheritance.
Get in touch
Balancing your income, investment gains, and the rising value of your estate against falling tax thresholds and extended allowance freezes won’t be easy in the years ahead.
At Globe IFA, we have the experience and expertise you’ll need to manage your finances tax-efficiently amid these imminent changes, so get in touch.
Please email hello@globeifa.co.uk or call us on 020 8891 0711 to discuss how Globe IFA’s expert financial advisors can help you.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor. Workplace pensions are regulated by The Pension Regulator.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.
