As the cost of living continues to rise, it’s hardly surprising that the tax changes announced by the chancellor and prime minister in 2021 have come under close scrutiny.

The changes came into effect on 6 April 2022 and aim to boost the UK’s coffers after record levels of borrowing during the early stages of the Covid pandemic.

The government also hopes the changes will help deal with the growing social care crisis.

That said, the Guardian reports the government has been accused of introducing stealth taxes, which will mean millions of workers will be worse off. Read on to discover seven tax changes you need to know about, and how a financial planner could help ensure you’re as tax-efficient as possible.

1. Personal Allowance freeze

The Personal Allowance is the amount you’re allowed to earn before becoming liable to Income Tax. In the 2022/23 tax year, the allowance was frozen at £12,570 until April 2026, and the 40% higher-rate tax remains at £50,270.

According to the above Guardian report, the move could generate an additional £21 billion for the Treasury as millions of workers face higher tax liabilities. If you’re one of them, speaking to a financial planner to ensure your earnings are as tax-efficient as possible might be a shrewd move.

2. National Insurance contributions

In September 2021, prime minister Boris Johnson announced that National Insurance contributions (NICs) would increase by 1.25 percentage points in 2022/23. The increase aims to help tackle the UK’s growing health and social care crisis, with the government pledging £39 billion over the next three years to deal with it.

Then, in March 2022, the chancellor increased the NICs threshold to £12,570 from 6 July 2022. This means that after this date, NICs will be charged at the following rates:

That said, if you earn between £9,881 and £50,270 from 6 April to 5 July, you will still be liable to Class 1 NICs at 13.5%. If you’re self-employed, you will be liable to Class 4 NICs at 10.25%, and Class 2 NICs at £3.15 a week.

The BBC reveals that if you earn more than £34,000 a year, the increase in NICs means your liability will increase. If this includes you, a financial planner may be able to help you reduce it.

3. Lifetime Allowance freeze

While you are allowed to have as much money as you would like in your pension pot, the Lifetime Allowance (LTA) limits the amount that receives tax relief. The LTA remains at £1,073,100 until April 2026.

This means that if you access any monies above the LTA, you will typically face a tax charge of up to 55%. Following the freeze, a greater proportion of your pension pot could face the tax charge, because the investments within it might continue to grow while the LTA remains the same.

That said, as you only become liable to the charge on money you withdraw that’s above the LTA, it may not be something you need to worry about. A financial planner could confirm this, and provide options to reduce any liability you face.

4. Increased Dividend Tax

Alongside the NICs increase announced in September 2021, the prime minister also increased Dividend Tax rates by 1.25 percentage points. The table below reveals the rates for 2022/23.

The good news is that the Dividend Tax Allowance remains at £2,000. This means you could receive dividend income that averaged 4% from a £50,000 investment, and not be liable to the tax.

5. Freeze of Capital Gains Tax annual exemption

As the exemption has been frozen at £12,300 until 2026, you can make a profit of this amount when you sell assets, and not be liable to Capital Gains Tax (CGT).

Depending on the asset you sell and your marginal tax rate, your CGT liability could be between 10% and 28%. That said, certain assets, such as your home, are typically exempt from the tax.

If your assets increase in value while the exemption remains frozen, they may be liable to a higher CGT charge.

A financial planner could help you lower any liability. For example, they can confirm whether splitting ownership of an asset with your spouse or civil partner could help, as this may double your annual exemption to £24,600.

6. Inheritance Tax thresholds frozen

In 2022/23, the Inheritance Tax (IHT) nil-rate band remains frozen at £325,000 until April 2026. The residence nil-rate band remains at £175,000 for the next four years, meaning you might be able to leave up to £1 million to loved ones IHT-free.

As the value of your home and other assets could increase in value while the thresholds remain frozen, your estate might face a larger IHT liability. As the tax is typically charged at 40%, it could significantly reduce the amount you leave to loved ones.

The good news is that the government allows you to reduce, or even negate, your estate’s liability. This could be achieved using gifts or placing your money into investments that can then be passed to beneficiaries IHT-free.

Intergenerational planning is complicated and can carry risks, so always speak to a financial planner as they will help you create a strategy that’s right for you.

7. ISA allowances remain the same

Last but by no means least is the ISA allowance, which has been frozen by the chancellor. This means you can place up to £20,000 in these tax-efficient accounts in 2022/23, and if you want to put money aside for your young children, you can also contribute up to £9,000 into a Junior ISA (JISA).

As these accounts are typically not liable to Income Tax and CGT, they allow you to build significant amounts in a tax-efficient environment relatively quickly. Remember, if you don’t use your ISA allowance, you lose it in the following tax year.

Get in touch

If you would like to discuss how you could be as tax-efficient as possible in 2022/23 and beyond,  please contact us by calling 0800 434 6337.

Please note:

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The value of your investments (and any income from them) 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. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.