Personal Allowances and Capital Gains Tax

With the new Spring Budget now in effect, adjustments to pension tax limits have been made from 6th April. Our advice is always up-to-date with the latest legislative developments, and we strive to identify any advantages that can improve your financial position. Our recommendations will be tailored accordingly to reflect the Chancellor’s latest modifications to the Allowances.

In this article we examine several key measures affecting pensions, Capital Gains Tax, Personal Allowances and dividends.

Pension Allowances

The following measures were introduced:

• The Annual Allowance will increase from £40,000 to £60,000. You will be able to save up to £60,000 per year into your pension pot and benefit from tax relief¹.
• The Lifetime Allowance (LTA) charge was removed from 6^th April 2023. The LTA was previously set at £1,073,100².
• The current Pension Commencement Lump Sum (PCLS) will stay the same at 25% of the £1,073,100 LTA³.
• The Money Purchase Annual Allowance (MPAA) will be increased from £4,000 to £10,000⁴. If you access your defined contribution pension pot, your contributions to this type of pension pot which are eligible for tax relief might be reduced. When the MPAA is activated, you will now be eligible for tax relief on pension contributions of up to £10,000.
• Income level for the tapered Annual Allowance will increase from £240,000 to £260,000⁵.

Capital Gains Tax (CGT)

The annual exemption currently set at £12,300 was reduced to £6,000 from 6^th April this year and will be reduced to £3,000 from April 2024⁶.

CGT tax rates

Tax rates on CGT were not subject to change and are as follows:

• The 10% rate on chargeable assets remains the same based on £50,270 annual income. If you sell a residential property the rate is 18% (unless you are eligible for Private Residence Relief)⁷.
• The rate of 20% on chargeable assets remains the same if your overall income is £50,271 or above. If you sell a residential property, the rate is 28% (unless you are eligible for Private Residence Relief)⁸. You can find out more about Private Residence Relief here.
• Individuals can potentially qualify for the 10% rate regardless of the available income tax rate band with: Business Asset Disposal Relief (BADR) and Investors’ Relief. Current lifetime limits are set at £1 million⁹ and £10 million respectively¹⁰.

Personal Allowance: Income tax

The income tax personal allowance will remain fixed at £12,570 until April 2028 with the basic rate of income tax remaining the same at 20%¹¹.

The 45% additional rate of income tax threshold was lowered from £150,000 to £125,140 from 6^th April 2023¹².

Dividends

From April 2023 the Dividend Allowance will drop from £2,000 to £1,000, and from April 2024 it will drop to £500¹³.

Please note: Tax allowances in Scotland may differ from other parts of the UK.

What matters to you, matters to us

1-2. https://www.gov.uk/government/publications/abolition-of-lifetime-allowance-and-increases-to-pension-tax-limits#:~:text=From%206%20April%202023%2C%20it,valid%20LTA%20or%20PCLS%20protection

3. https://www.gov.uk/government/publications/abolition-of-lifetime-allowance-and-increases-to-pension-tax-limits/pension-tax-limits

4. https://www.gov.uk/government/publications/abolition-of-lifetime-allowance-and-increases-to-pension-tax-limits#:~:text=From%206%20April%202023%2C%20it,valid%20LTA%20or%20PCLS%20protection

5. https://www.gov.uk/government/publications/abolition-of-lifetime-allowance-and-increases-to-pension-tax-limits/pension-tax-limits

6. https://www.gov.uk/government/publications/reducing-the-annual-exempt-amount-for-capital-gains-tax#:~:text=This%20measure%20changes%20the%20Capital,%C2%A33%2C000%20for%20most%20trustees

7. https://www.gov.uk/capital-gains-tax/rates

8. https://www.gov.uk/capital-gains-tax/rates

9. https://www.gov.uk/government/publications/entrepreneurs-relief-hs275-self-assessment-helpsheet/hs275-business-asset-disposal-relief-2021

10. https://www.gov.uk/government/publications/investors-relief-2020-hs308/hs308-investors-relief-2020

11. https://www.bbc.co.uk/news/explainers-63635185

12. https://www.gov.uk/government/publications/lowering-of-the-additional-rate-threshold/income-tax-additional-rate-threshold-from-6-april-2023

13. https://www.gov.uk/government/publications/reduction-of-the-dividend-allowance/income-tax-reducing-the-dividend-allowance

Lloyd & Whyte (Financial Services) Ltd are authorised and regulated by the Financial Conduct Authority. Registered in England No. 02092560. Registered Office: Affinity House, Bindon Road, Taunton, Somerset, TA2 6AA. It is important to take professional advice before making any decision relating to your personal finances. Information within this newsletter is based on our current understanding of taxation and can be subject to change in future. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK; please ask for details. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. If you withdraw from an investment in the early years, you may not get back the full amount you invested.