What you need to know about your tax allowance for 2023/24

From income tax to the new pension reforms, what changes will affect you?  

As a new tax year begins there are a few tax changes you need to be aware of. It can, however, be difficult to keep on top of these new rules, which is why Moneyfactscompare has listed some of the most notable laws, with explanations, below.

Remember, you can read about other tax changes by downloading the Moneyfacts taxfacts booklet. 

Income tax is charged on your earnings and is the Government’s primary source of revenue. Not only is it applied to your salary, but it’s also required on other forms of income such as a pension or interest on your savings account.

Money earned through income tax is then used to fund public services, such as education and defence spending, among other projects.

The amount of income tax you pay depends on your income.

To start, everyone has a personal allowance of £12,570. This means you won’t be taxed on the first £12,570 of your annual income. After this, your rate of income tax depends on your total earnings and where you live.

Those who live in England, Wales and Northern Ireland can expect to fall into the following tax brackets:

If you live in Scotland, then you’ll be taxed slightly differently.

To illustrate how this works, consider this example:

Gary earns £55,000 per year and lives in England. Now, just because his final figure fits into the higher rate threshold, all his earning won’t be taxed at 40%. Instead, it will work out like this: 

In total he’ll owe £9,432 for the year.

Now, the rules change if you earn more than £100,000 per year. For every two pounds you earn over this threshold you lose £1 from your personal allowance. This means if you earn £125,140 you don’t get an allowance.  

In the Autumn Budget, Chancellor Jeremy Hunt confirmed that the threshold at which earners start paying the additional rate of income tax will be lowered to £125,140. It previously sat at £150,000.

In England, Wales and Northern Ireland the additional rate of income tax will remain at 45%, but in Scotland it will increase from 46% to 47%.

National Insurance contributions are another form of income for the Government. It is used to pay for state benefits, like funding towards the NHS and state pensions.

National Insurance contributions are typically paid by employees, employers and the self-employed which means, unlike income tax, it isn’t charged on pensions and interest earned through savings.

However, some people who don’t earn a salary can voluntarily pay in their National Insurance contributions to receive certain state benefits.

As an employee, you’ll need to start paying National Insurance contributions if you earn more than £242 a week. This works out to £12,584 a year.

Your earnings between £242 and £967 a week are charged at 12%. Anything above £967 a week, which works out to an annual salary of £50,284, requires a 2% charge.

If you’re self-employed, your National Insurance contributions will depend on your profit. Even if you’re not making a profit, there is the option to voluntarily pay National Insurance contributions to receive certain benefits such as the state pension.

A change in council tax will depend on your council, but most people will see a rise in this tax this year. According to the County Councils Network (CCN), of the 114 councils which have published their budgets for the 2023/23 year, 84 will be increasing council tax by 4.99%.

This is the maximum increase permitted by the Government.

As enforced by the Triple Lock, State Pensions will rise by 10.1% this year. This means those on a new single-tier State Pension will now receive £203.85 a week, while those on the basic state pension will receive £156.20 a week.

That was the main change announced in the last Autumn Budget, with the Spring Budget bringing its own raft of reforms.

After outlining his plan to encourage retirees to re-join the workforce in the Spring Budget, Chancellor Jeremy Hunt abolished the Lifetime Allowance. This was a cap at which you could add to your pension before receiving an excess tax charge.

In support, the Annual Allowance has also been raised from £40,000 per year to £60,000. This is the maximum amount you could add to your pension each year before incurring an excess tax charge.

The Money Purchase Annual Allowance has also been raised from £4,000 to £10,000.

You can find out more about these in our guide to tax and your pension.

This tax year the national living wage increased by 9.7% and now stands at £10.42 per hour. This represents the largest ever cash increase to the national living wage, according to the Government.

Only those aged 23 or older are entitled to this amount. So, we’ve listed further details of the national minimum wage below.

Your annual tax-free allowance for dividends has been halved to £1,000. This means you don’t pay tax on the first £1,000 earned through dividends.  

This is not to be confused with your annual exempt amount, which will also be changed this year.  

Your annual exempt amount is applied when you sell or “dispose of” your assets for a profit. For example, it could be when you sell your holiday home or a large portfolio of stocks.

At the beginning of the last tax year, capital gains tax would be charged on possessions worth £12,300 or more. However, it is now reduced to £6,000.

To learn more about capital gains tax, make sure to read our guide.