Older people could be caught out by tax in 2023-24.
One reason state pension claimants might be caught out is the recent increase in the state pension. In April this year it rose from £185.15 a week to £203.85 for those who retired after April 2016. Different amounts apply to those who retired before 2016. The increase in income coupled with a freeze in the personal allowance could bring more pensioners into tax this year.
Pensioners with savings and investments might also see tax liabilities for the first time. Until 2016 savings income was taxed at source so basic rate taxpayers had no further liability . Until recently interest rates have been low so the savings allowance of £1,000 for basic rate taxpayers (£500 for higher rate taxpayers) has covered interest received for most savers. However, with increasing interest rates, more taxpayers will generate interest which exceeds the allowance. Until 2016 dividends, like interest, were taxed at source so basic rate taxpayers had no further tax to pay. Since 2016 a dividend allowance has been in place meaning some dividend income is tax free. However, this fell from £5,000 to £2,000 a year in 2018. From April 2023 it has fallen again to just £1,000 with a further reduction to just £500 in 2024/25, which will inevitably mean more people paying Income Tax on their investment income.
Investors might also incur a Capital Gains Tax liability for the first time as the Annual Exemption has fallen from £12,300 to just £6,000 from April 2023. This will further reduce to £3,000 in April 2024.
We are always here to help. Please get in touch if you, or anyone you know, needs any help to get their tax correct.