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6th April 2022 marks an important date in the financial calendar which could have a big impact on your wealth and finances. At Cedar House, we want to help ensure you have the information you need to make preparations with your financial adviser. Below, we outline five tax changes to be aware of – and plan for.
We hope you find this content useful. If you want to discuss your own financial plan with us, please contact our team for more information or to access personalised financial advice:
020 8366 4400 or enquiries@cedarhfs.co.uk
#1 Dividend tax rise
In 2021, the Government announced a set of tax rises to take place in April 2022 to help cover the costs of its new “social care cap” (i.e. £86,000 from October 2023). One of them is a rise in dividend tax by 1.25%. This means that, for a Basic Rate taxpayer, dividends may be subject to 8.75% dividend tax rather than 7.5%. People on the Higher Rate might need to pay 33.75% instead of 32.5%. Fortunately, there are many channels you can consider to mitigate the impact of this rise. For instance, making full use of your £20,000 annual ISA allowance can help, since any dividends generated within an ISA are free from dividend tax. In 2022-23, moreover, you will still have access to your annual tax-free dividend allowance of £2,000.
#2 Inheritance tax reporting
In recent years, the UK government has steadily been increasing the money it collects through inheritance tax (IHT) annually. This is partly down to a lack of estate planning by individuals and couples across the UK. Certainly, the UK’s tax system is highly complex and many people do not understand it well enough to navigate properly on their own.
If you have not sought professional advice about your estate plan, consider approaching a financial adviser to help you. Bear in mind that, from 1st January 2022, the rules have changed about “excepted estates”. These rules might mean that beneficiaries may not need to report the estate’s value when the owner dies (provided no IHT is due).
#3 National Insurance changes
From the start of the 2022-23 tax year (6th April 2022), National Insurance (NI) is set to rise by 1.25% to help pay for the Government’s health and social care plans. If you are employed, this should automatically be taken from your payslip via the PAYE system. You should start to see the levy indicated separately on your payslip from April 2023. From this date, people working who are over their State Pension age will also need to pay the levy.
The tax landscape surrounding who will pay more, and how they will be affected, is complex. It is partly so due to the different NI classes, different salary ranges and employer contributions. However, some important things to know include:
- Lower earnings limits for NI are set to rise by 3.1% to match September 2021 CPI inflation. Currently, those earning under £9,568 pay 0% on the Class 1 rate. From 6th April, however, this earnings threshold will stand at £9,880.
- Upper earnings thresholds, however, are being frozen at £50,270. For those whose earnings are approaching the Higher Rate, therefore, consider doing some tax planning with your financial adviser if you want to mitigate the impact of 3.25 Class 1 NICs on your monthly finances.
#4 Capital gains tax (CGT) reporting
If you have a property that you are considering selling later in the year (not your main home), then this change to CGT reporting may affect you. From 6th April 2022, you will have 60 days to report a gain made from selling a property (and the tax due) – instead of 30 days.
This will only apply for properties sold on/after 27th October 2021. So, if you sold a property on, say, the 25th October 2021, you should have reported any gain you made within 30 days of the sale. Bear in mind that you must follow the rules about reporting capital gains and CGT within the correct time frame, using the residential property return form – and sending it to HMRC. Failure to do so is likely to result in a fine.
#5 Scottish income tax
For Scotland residents, you likely already know that your income tax rate is set by the Scottish government – not the UK government. Proposals in December 2021 suggest that rates may rise for various people from April 2022 (although these must be approved by the Scottish Parliament and receive the Queen’s signature, first).
In short, those on the Starter Rate (i.e. earning between £12,570-£14,667 in 2021-22) will be able to earn up to -£14,732 before the Basic Rate of 20% starts kicking in. Basic Rate taxpayers will be able to earn £392 more until they need to pay the Intermediate Rate. Those on the rates above these are not projected to experience a change to their income tax rates.
Conclusion
Interested in discussing your financial plan with an experienced financial adviser? Get in touch today to discuss your financial plan with a member of our team here at Cedar House via a free, no-commitment consultation:
020 8366 4400 or enquiries@cedarhfs.co.uk