The new tax year commenced on 6 April 2022 and opened against a backdrop of the country recovering from the challenges experienced relating to the Covid-19 pandemic, the war between Russia and Ukraine and economic uncertainty. Although tax planning should be an all year-round activity, we have provided an overview of some of the key rates of tax, including recent changes to help keep you informed.

Unless otherwise specified, the tax rates used are for the 2022/23 tax year to 5 April 2023.

National Insurance increase

From 6 April, National Insurance increased by 1.25%. That’s an increased cost of £255 for those earning £30,000, or £505 for those earning £50,000. The National Insurance threshold increased to £9,880 per year, meaning you don’t pay National Insurance if you earn below that level. This means you pay National Insurance at a rate of 13.25% on earnings between £9,880 and £50,270 per year, and 3.25% on earnings above £50,270 a year.

In July 2022, the National Insurance threshold will increase again so that you only start paying National Insurance on earnings above £12,570. This means the threshold will align with the personal allowance. You will pay National Insurance at a rate of 13.25% on earnings between £12,570 and £50,270 per year, and 3.25% on earnings above £50,270 a year.

There’s been a similar rise for employers’ National Insurance. One way to help to mitigate it is to consider salary sacrifice schemes for pensions and other benefits, which allows you to take some of your benefits before your salary is paid, however you should be aware that reducing earnings via salary sacrifice can impact entitlement to income related employer and Government benefits and may not be appropriate for some individuals.

Company directors could reduce their National Insurance contributions by taking more of their income as dividends as opposed to salary. This also reduces the employer’s National Insurance costs.

Remember, your National Insurance contributions allow you to build up entitlement to state benefits, including the State Pension. If your earnings currently dip below £6,396 and you are not receiving credits or paying voluntary contributions, your eligibility for these benefits may be reduced.

State Pension

State Pension payments increased by 3.1% to align with inflation in the year to September 2021. The full new State Pension increased to £185.15 a week. Full basic State Pension pay-outs rise to £141.85 a week.

Making contributions to a pension can reduce your taxable earnings and may even take your income into a lower tax bracket.

Frozen thresholds

The personal allowance (the amount most of us can earn without paying tax) remains at £12,570, and the threshold for paying higher rate tax remains at £50,271. From earnings of £100,000, the personal allowance begins to be withdrawn, and the additional rate threshold remains at £150,000.

The marriage allowance means that one spouse can allocate up to £1,260 of their unused personal allowance to the other. This could potentially save up to £252 per year in tax.

If you have savings income, including interest and chargeable gains from investment bonds, up to £1,000 of this may be tax-free. This allowance is reduced to £500 for higher rate taxpayers and nil for additional rate taxpayers. Additionally, up to £5,000 of savings income may be tax-free if your earned income is less than £17,570.

Child Benefit

Child Benefit payments increased in line with inflation of 3.1% in line with other benefits. This means that parents will be able to receive £21.80 a week for their eldest or only child and £14.45 a week for any additional children. This works out at £1,133.60 a year for one child, and £751.40 a year for subsequent children.

If one parent in your household earns more than £50,000, they have to start paying the Child Benefit back through their tax return. Once they earn more than £60,000, they have to pay all the Child Benefit back.

Inheritance Tax (IHT)

Estates valued at over the £325,000 nil-rate band allowance Inheritance Tax (IHT) threshold pay tax of up to 40% on the excess. Married couples can benefit from a joint nil-rate band of £650,000. If the estate includes a family home passing to a lineal descendant, up to a further £175,000 can be claimed (£350,000 for a jointly owned property).

Making gifts to family members, trusts, or charities. Gifts of up to £3,000 per year are immediately exempt out of your estate, while some larger gifts out of your estate become exempt of IHT after seven years. Charitable donations are immediately exempt.

Leaving at least 10% of your estate to charity reduces your IHT rate from 40% to 36%.

While it doesn’t reduce the tax payable, a whole of life policy placed in an appropriate trust could provide your beneficiaries with a means of paying the tax outside the estate.

It’s advisable to seek advice from a regulated financial planner if you are considering some of the more complex options relating to IHT.

Capital Gains Tax

The Capital Gains Tax (CGT) threshold is frozen at £12,300 until 2026. This means that if you sell assets, you will pay tax on any profits above this level. Assuming investment and property values continue to increase, this means that higher levels of tax could become payable.

If appropriate you could consider making use of your annual exemption every year, for example, by switching funds, withdrawing an income, or moving up to £20,000 into your ISA.

By holding assets jointly with your spouse, you can make use of two allowances. Transfers to a spouse or into joint names are free of CGT.

You could also defer tax on realised gains, potentially indefinitely, by reinvesting the proceeds in an Enterprise Investment Scheme (EIS). This is a high-risk investment, and you should seek financial advice from a regulated professional if this is something you are considering.

Please note: This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

The content was accurate at the time of writing. Whilst information is considered to be true and correct at the date of publication, changes in circumstances, regulation and legislation after the time of publication may impact on the accuracy of the article.

This information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change and tax implications will be based on your individual circumstances.

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