MILLIONS are facing brand new money shake-ups from today.
As the new tax year begins, you should expect to see a few changes to payments including state pension and tax allowance.
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The tax year runs from April 6 to April 5 – not from January to December like a calendar year.
As it hits every April you’ll get certain allowances, like how much you can earn, save and put into your pension before you start paying tax on it.
You may notice differences in how much tax you have to pay each year as well.
But this year brings a host of new changes including cuts to tax allowances and other freezes.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “It’s going to be a horribly taxing year, as a combination of dramatic cuts to some tax allowances and freezes to others takes a nasty toll.
“There’s the odd glimmer of hope in some of the new pension rules, but whether the changes bring new opportunities or more horrible headaches, the earlier you can take action in the new tax year, the sooner you can protect your money from the clutches of the taxman.”
It can be difficult to figure out exactly what’s changing when, so we’ve created a handy list for you.
Below you’ll find 10 big money changes happening from today, and what they mean for you.
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Boosted benefits and state pension
A pay boost will hit millions as benefits go up by 10.1% in line with inflation for last September.
It means millions of pensioners will get an £870 rise in their state pension payments.
The full state pension rate of £185.15 per week is increasing by £18.70 and pensioners are getting a total of £10,600 a year.
While the basic state pension goes up £14.35 from £141.85 per week to £156.20.
Over the year, that will be an increase of £746.20 to £8,122.40 in total.
Benefits including Universal Credit and Child Benefit will also increase by last September’s inflation rate today.
Read our roundup to check how these are increasing plus what other benefits are included.
Pension annual allowance rise
The pension annual allowance is the maximum amount that you can save into your pension in a year before you get penalised with tax.
It covers all your pension pots including personal, workplace and final salary schemes.
The allowance had been frozen until April 2026 and was set at £40,000 per year, but this has been increased to £60,000 today.
If you bust your allowance, you’ll need to fill in a self-assessment tax return.
Money Purchase annual allowance rise
The Money Purchase annual allowance will go up from £4,000 to £10,000 today.
This is the amount you’re able to put into your pension once you’ve already taken some from it.
Tapered annual allowance rise
The tapered annual allowance is lower than the standard annual allowance.
The minimum annual allowance someone with tapering can keep is going up to £10,000 today from previously £4,000.
But the amount of income you need for the tapered allowance is also increasing – rising from £240,000 to £260,000.
End of pension lifetime allowance
Today the lifetime allowance is abolished, ending the £1.073million freeze.
The pension lifetime allowance is the total amount you can save tax-free into a pension scheme.
When the lifetime allowance was introduced back in 2006, it stood at £1.5million.
In 2010-11, it went up to £1.8million. Since then it has been cut and frozen.
Freezing the pension lifetime allowance effectively lowered the amount you could put into your pension to avoid an extra tax on withdrawal.
It was set to be frozen until April 2026, but Jeremy Hunt announced he would abolish it during this year’s Spring Budget.
Dividend tax allowance cut
You may get a dividend payment if you own shares in a company, and you can earn a certain amount without paying tax.
However, the dividend allowance has halved today from £2,000 to £1,000.
It’ll then be halved again to £500 from April 2024.
This means millions of taxpayers will start paying taxes sooner, including pensioners, self-employed and business owners who pay themselves in dividends.
The dividend allowance has been held at £2,000 in the previous six tax years.
How much tax you’ll pay on dividends above the allowance depends on your income tax band.
For example, basic rate taxpayers pay an 8.75% rate, higher rate earners pay 33.75% and additional rate Brits pay 39.35%.
Capital gains tax cut
From today, the capital gains tax (CGT) allowance will be cut in half from £12,300 to £6,000.
Capital gains tax is the money you pay to HMRC when you sell something that has gone up in value, such as stocks and shares, artwork or even a second home.
It was frozen at £12,300 until 2026 but that has now changed.
Next April, CGT will then drop to £3,000.
Increased tax for higher earners
The only big change to tax bands from today is for people in the additional rate tax bracket.
The threshold for the 45% tax band will fall from £150,000 to £125,140.
Meanwhile, the basic rate (20%) and the higher rate (40%) thresholds remain the same.
The additional rate change is expected to pull a quarter of a million more people into the top rate of taxation.
Frozen thresholds
Personal allowance, higher rate, and child benefit caps have all been frozen over into the new tax year.
It means that over time more people will be pushed over the thresholds to pay more tax.
Frozen thresholds include:
- Personal allowance (how much you can earn before tax) – £12,570
- The higher rate threshold (when you start paying 40% tax) – £50,270
- Personal allowance is withdrawn – £100,000
- When you lose child benefit – £50,000
Inheritance tax thresholds and gift allowances have also been frozen, as has the student loan repayment threshold.
Scottish income tax rise
Households in Scotland will experience a 1p rise in the rate of income tax from today.
The higher rate will rise from 41p to 42p and the additional rate from 46p to 47p.
However, the additional rate threshold will fall to £125,140 from today.
