The current tax-free Personal Allowance of £12,570 will be frozen until 2028 – a two year extension to the freeze which was previously expected to end in 2026. The higher rate tax threshold will also be frozen until 2028 – the 40% rate tax will be payable on all non-savings and savings income between £50,270 and £125,140.
The threshold for the highest rate of tax will fall from £150,000 to £125,140. The additional tax rate of 45% will be payable on all non-savings and savings income above £125,140, so any individual already paying the 45% rate in 2022/23 will face an income tax increase of at least £1,243 for 2023/24.
Individuals with income of more than £100,000 will continue to have their Personal Allowance tapered, with those on incomes of more than £125,140, not being entitled to any Personal Allowance.
These changes will not apply to Scottish Taxpayers (not capital Taxpayers), where the rate continues to be set independently by the Scottish Parliament – its Budget is due on 15 December 2022.
The Chancellor announced that the tax-free allowance for dividend income will be halved from 6 April 2023 and again from 6 April 2024. Shareholders will start to pay tax on dividend income in excess of £1,000 (previously £2,000) in 2023/24, and where it exceeds £500 in 2024/25.
The tax rate that will apply to dividend income will depend on an individual’s tax band, with the current rates continuing in future years at 8.75% for basic rates taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate.