This year promises to be tough for all concerned when it comes to our finances as we emerge from the COVID-19 pandemic and begin to rebuild the countries economy and as with any new tax year there are several tax changes you need to be aware of to avoid any penalties or reporting incorrectly.

Despite calls from the Government to call them off It was announced in the 2021 Autumn budget by the Chancellor that many tax payers will soon see hike in their National Insurance contributions along with an increase in the tax bills on dividend income.

As well as these there are also to be changes to be aware of if you make a capital gain, or have to pay inheritance tax on someone’s estate.

Here we explain what the tax changes are, and how they may affect your tax bill for the upcoming year.

Allowances Frozen

As outlined in the 2021 Spring budget the government confirmed that the personal allowance will remain frozen at £12,570 up to and including 2025/26, meaning you will only pay tax on the amount you earn over this. The same applies to the other income tax thresholds, capital gains tax, inheritance tax and the VAT-registration threshold.

For income tax, the basic rate of 20% will apply on total income falling between £12,571 and £50,270. Anything above that and the higher rate of 40% will kick in and then the additional rate of 45% will start on earnings over £150,000.

There will be some changes in how you report capital gains (as we’ll mention later) however the allowance & rates will still remain the same with the annual exemption amount being £12,300 for individuals and £6,150 for most trusts.

The inheritance tax thresholds – the nil-rate band (£325,000) and residence nil-rate band (£175,000) – and the pensions lifetime allowance (£1,073,100) will be maintained at their existing levels until April 2026. As will the UK VAT-registration (£85,000) and deregistration (£83,000) thresholds.

National Insurance Contribution Increase

As part of the government’s plan to introduce a health & social care levy where working people are to contribute to the NHS and social care crisis taxpayers are set to see their National Insurance rates rise by 1.25 percent from April 2022.

This increase will be taken along with the rest of your National Insurance payment in 2022-23, however the plan is to officially split the health & social care levy from April 2023.

In conjunction with the health & social care levy the National Insurance lower earnings threshold will also increase by 3.1%, however the upper earnings threshold will remain the same at £50,270. Meaning those earning above the upper earnings threshold will be able to keep more of their money before contributions kick in.

For self-employed individuals the rates & thresholds for National Insurance has increased also for Class 2 National Insurance Contributions (NIC’s) the threshold has increased to £6,725 and the rate has increased to £3.15 per week and for Class 4 NIC’s the threshold has also increased to £9,880 and the rate has also increased from 9% to 10% plus the £3.15 per week charge. The higher threshold for self-employed individuals has also remained the same at £50,270 with the rate only increasing on profits above this by the 1.25% health & social care levy to 3.25% overall.

Increase to Dividend tax rate

Along with the 1.25 percentage increase to National Insurance rates those who earn money through dividends will also see a similar increase from April.

If you’re an investor or director that earns money through owning shares of a company you may have to pay dividends tax; this is only chargeable on the amount you earn above the dividend allowance of £2,000 in 2022-23 which is unchanged from 2021-22.

The basic dividend tax rate has increased to 8.75 % and the higher rate to 33.75%, whilst the additional rate of dividend tax has increased to 39.35%.

Capital gains tax reporting extended

As previously mentioned as announced by the chancellor in the Autumn Budget 2021 there will be an upcoming change which will affect anyone who makes a capital gain after selling a property.

Prior to this there had been a window of 30 days for tax payers to report the gain and pay any tax owed, however as of the budget this has been immediately increased to 60 days.

This means that anyone who makes a capital gain after selling a second home or buy-to-let property will need to submit a residential property return to HMRC, and make a payment on account for the estimated tax owed within 60 days of disposing of the property.

If the property was sold prior to the announcement by the government (on 27th October 2021) you will have still been required to report and pay the CGT within 30 days.

Changes to reporting Inheritance tax.

There has also already been a rule change that has come into effect but only from the start of the year.

For anyone who dies on or after 1 January 2022, there are new rules about whether or not their estate can be classed as an ‘excepted estate’. Estates classed as being ‘excepted’ may not require heirs to report the estate’s value – as long as there’s no inheritance tax to pay, or any other reasons that mean the estate should be reported.

In order for it to be counted as an ‘expected estate’ on or after January 1st 2022 it must:

  • have a value below the inheritance tax threshold
  • be worth £650,000 or less and any unused threshold is being transferred from a spouse or civil partner who died first
  • be worth less than £3m and the deceased left everything in their estate to their surviving spouse/civil partner who lives in the UK, or to a qualifying registered UK charity
  • have UK assets worth less than £150,000 and the deceased had permanently been living outside the UK when they died.

As with any new tax year the rule changes can be complicated and difficult to navigate in order eliminate any potential pitfalls & penalties feel free to get in contact with me for a free no obligation consultation or if you would like to take advantage of my tax return service drop me an email.

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