Income tax - 1 per cent cut to basic rate brought forward and top rate removed
The previously announced 1 per cent cut to basic rate income tax will be brought forward to take effect from April 2023, one year earlier than planned. And, a surprise measure, the top rate of income tax (45 per cent) will be removed at the same time.
With no suggestion of a change of thresholds, the income tax rates applicable for 2023/24 (for non-dividend income) will be as follows:
|Band||Taxable income||Tax rate|
|Personal allowance||Up to £12,570||0%|
|Basic rate||£12,571 to £50,270||19%|
|Higher rate||Over £50,270||40%|
In support of charities, there will be a four-year transition period for Gift Aid relief to maintain the income tax basic rate relief at 20 per cent until April 2027. There will also be one-year transitional period for ‘relief at source’ pension schemes to permit them to continue to claim tax relief at 20 per cent.
For dividend income, the dividend upper rate (currently 39.35 per cent) will also be removed, and the dividend higher rate will be reduced to the 32.5 per cent applicable before this year’s increase by 1.25 per cent to help fund social care, in each case from April 2023. This will make operating through a company more appealing (especially in the light of the IR35 changes detailed below).