Will your personal tax allowance increase in 2023?

Jan 16, 2023

When it comes to government budgets and tax, it’s fair to say that 2022 got a little, well… complicated. With a record-breaking turnover of Prime Ministers and a U-turn on the controversial mini-budget, you’d be forgiven for feeling a bit lost as we venture into 2023.

In the Autumn Statement of 2022, Chancellor Jeremy Hunt pulled the UK’s budgeting paperwork out of the famous red briefcase and announced changes to how your tax will be calculated in 2023.

So, will your income tax personal allowance increase in 2023, what are the new higher rate thresholds for tax, and how will your money be affected under Prime Minister Rishi Sunak’s income tax? Loqbox has untangled the confusion to shine a little light on the new year!

What is the personal tax allowance in 2023/24?

Your income tax personal allowance is the amount of money you can earn over the tax year before you have to pay income tax.

The tax year (sometimes called the fiscal year) runs from 6th April until 5th April the following year. If you earn a singular monthly wage from your employer or are a pensioner, HMRC usually divides this allowance over the 12 months to give you a discount on taxable income.

In 2022, this allowance was set at £12,570. The government has frozen that allowance for 2023, and it’s expected to stay the same until April, 2026. So, the standard personal tax allowance for 2023/24 will still be £12,570.

If your annual salary is below this amount you are not required to pay any income tax. But you may still need to pay National Insurance (NI).

So there’s no change on the surface, but it might make a difference to your pocket. Because of annual wage growth, freezing the income tax personal allowance for a few years means that millions of workers will lose more of their earnings to income tax as salaries rise.

How much tax will I pay in 2023/24?

As well as a threshold for how much money you earn before paying income tax (£12,570), there are thresholds for how much income tax you pay depending on the level of your earnings. These are income tax rates and thresholds, also known as tax brackets.

Generally, higher earners pay a greater percentage of their income to the government.

Will tax brackets change in 2023?

For lower earners, the tax thresholds will stay the same in 2023 as they were in 2022. But for higher earners, there will be a change.

The additional rate threshold (ART) — which is the tax bracket where workers must pay the highest rate of tax — is lowering from £150,000 to £125,141. 

We should mention that this new threshold is also the amount of money that you can earn in a year where you no longer have a personal tax allowance. This is because for every £2 over £100,000 that you earn in a year, £1 of your personal tax allowance is removed. £125,141 is when your personal tax allowance is reduced to zero.

In 2023/24, the income tax rates and thresholds for people living in England, Wales and Northern Ireland are:

  • Earning £12,571 to £50,270 = Basic rate of 20%

  • Earning £50,271 to £125,140 = Higher rate of 40%

  • Earning £125,141+ = Additional rate of 45%

Scotland’s proposed income tax rate thresholds for 2023/24 are:

  • Earning £12,571 and £14,732 = Starter rate of 19%

  • Earning £14,733 and £25,688 = Basic rate of 20%

  • Earning £25,689 and £43,662 = Intermediate rate of 21%

  • Earning £43,663 and £125,140 = Higher rate of 42%

  • Earning £125,141+ = Top rate of 47% 

The 2023/24 tax year starts 6th April 2023 and ends 5th April 2024. However, the Chancellor announced that these tax threshold freezes will remain until April 2028.

This means that some workers are likely to cross the tax thresholds as wages rise and find themselves in higher tax brackets.

What’s my tax code for 2023/24?

Your tax code is given to you by HM Revenue and Customs (HMRC). It lets you, your employer or your pension provider know how much income tax and national insurance you should be paying. You can find out your tax code from HMRC (in letters, online or on their app) or by checking your payslip.

Your tax code can change depending on your circumstances. The numbers in your tax code relate to how much you can earn before you start to pay income tax. The standard tax code for 2023/24 is 1257L.

Don’t worry if you have different letters in your tax code though.
This can depend on where in the UK you live, for instance, it would be C125L if you live in Wales. Or if you’ve shared part of your personal tax allowance with your spouse or civil partner, or if you owe additional tax from a previous year and this is being repaid in the current tax year. You can read more about the different tax codes here.

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