New tax year: six big tax changes from April

The start of the 2023-24 tax year has seen a range of tax changes kick in. Will you be hit with higher taxes?

Envelopes marked HM Revenue and Customs
(Image credit: Getty images)

The new tax year began on 6 April, ushering in a range of changes to the taxes we pay, from council tax and income tax to car tax and pension taxes.

As a result, some people will see significant changes to the amount of tax they pay over the year.

Here is everything you need to know about what’s changing, and what it will mean for your money.

1. Council tax increases: big hikes for many households

The amount we have to pay in council tax has gone up for most people with the start of the new tax year, though the exact amount will vary based on region.

Individual councils set their own tax levels, and are permitted to increase the tax by up to 5% without having to hold a local referendum, where local residents essentially have to agree to a larger increase.

Councils that provide social care can hike bills even further.

According to data from the government, the average Band D council tax in England for the 2023-24 tax year is £2.065, up by £99 on the last tax year. That works out at an average increase of 5.1%.

The council tax hikes can differ substantially based on your location. Canterbury residents, for example, face a rise of 2.24% while Birmingham residents can expect a rise of 4.99% and Berkshire residents can expect an even heftier rise of 6.76%. 

2. Increased income tax for higher earners: more people to pay 45% tax

Top earners will have to pay more tax this year, with the additional rate income tax (45%) threshold falling from £150,000 to £125,140. It means 250,000 more people will be pulled into the top rate of income tax.

But basic-rate taxpayers and higher-rate taxpayers will continue to pay 20% and 40% respectively with the same thresholds in place as last year. 

Everyone has a tax-free personal allowance, meaning they can earn up to £12,570 in the 2023/24 tax year without paying any income tax. Earnings between this level and £50,270 are taxed at the basic 20% rate, while earnings between £50,271 and £125,140 are taxed at 40%.

3. Capital gains tax allowance cut: pay more when you sell a second property or shares

The capital gains tax (CGT) allowance has been cut from £12,300 to £6,000.

Each year you can sell assets, such as a second property, shares or artwork, and enjoy a portion of the profits without having to pay tax. Previously the first £12,300 was free of CGT, but now you have to start paying tax after you make £6,000.

For example, if you sell a second property for £200,000, having previously bought it for £140,000, you will have made a profit or ‘gain’ of £60,000. After the previous annual allowance of £12,300 was taken off, this taxable gain fell to £47,700. 

But now, once the new annual allowance of £6,000 is taken off, the taxable gain will be £54,000.

And from April 2024, the CGT allowance will drop again to £3,000.

4. Dividend allowance cut in half: the self-employed and investors will pay more

The government has also cut the tax-free allowance for dividends from £2,000 to £1,000.

It means hundreds of thousands of freelancers, small business owners and contractors who pay themselves through dividends and investors who receive dividend payments from their investments outside an ISA will start paying taxes sooner.

And from April 2024, the dividend allowance will fall to £500.

5. Boost to annual and lifetime allowances: good news for pension savers

In the Budget this year, the chancellor announced some significant changes to the allowances that apply to how much can be saved into a pension without being subject to a tax charge.

The annual allowance previously stood at £40,000, but increased to £60,000 with the start of the new tax year.

The lifetime allowance previously stood at £1,073,100, but has now been abolished.

It’s good news for pension savers, as it means they can pay in more each year, and build up a bigger pot by the time they reach retirement, without being slapped with a tax charge. 

6. Vehicle excise duty rises: bad news for drivers

Vehicle excise duty (VED), which is sometimes referred to as car tax, is paid by motorists each year.

You pay a specific rate for the first year of a car’s registration, based on its emission levels, followed by a flat standard rate every year thereafter.

The VED rates have increased in line with the rate of inflation, meaning a 10% jump.

As a result, the standard rate has jumped from £165 to £180. The rise in the first-year rate will vary based on your vehicle’s emission levels. For example, if your car emits 91-100g/km, the first-year VED will move from £150 to £165, while vehicles emitting above 255g/km will mean a tax of £2,605, up from £2,365 last year.

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John Fitzsimons
Contributing editor

John Fitzsimons has been writing about finance since 2007, and is a former editor of Mortgage Solutions and loveMONEY. Since going freelance in 2016 he has written for publications including The Sunday Times, The Mirror, The Sun, The Daily Mail and Forbes, and is committed to helping readers make more informed decisions about their money.