Page 5 - Budget Newsletter - March 2023

INVESTORS AND SAVERS

The personal allowance

The personal allowance was frozen at £12,570 in the March 2021 Budget and, following last year’s
Autumn Statement, will remain at that level until the end of the 2027/28 tax year. Had it received
the normal inflationary increase, the allowance for 2023/24 would have risen to £14,265. At the other
end of the income scale, some taxpayers will have no personal allowance in 2023/24 (or future tax
years up to 2027/28) because their income exceeds £125,140. The tapering of the personal
allowance starts at £100,000 and reduces the allowance to nil at £125,140 – also the coming tax
year’s new (and much reduced) threshold for additional/top rate tax.

If you or your partner do not fully use the personal allowance, you could be paying more tax than
necessary. There are several ways to make sure you maximise use of your allowances:

• Choose the right investments: some investments do not allow you to reclaim tax paid while
others are designed to give capital gain, not income.

• Couples should consider rebalancing investments so that each has enough income to cover
their personal allowance.

• Make sure that in retirement you (and your partner) each have enough pension income. On its
own, state pension provision is not enough, be it the new state pension (up to £203.85 a week
in 2023/24) or the old state pension of £156.20 a week (if you reached your state pension age
(SPA) before 6 April 2016).

• If one of you pays tax at no more than basic rate and the other is a non-taxpayer, check whether
it is worth claiming the transferable married allowance (£1,260 in 2021/22, 2022/23 and
2023/24).

The PSA

The PSA first appeared in April 2016 and has been unchanged since then. Broadly speaking, if you
are a:

• basic rate taxpayer, the first £1,000 of savings income you earn is untaxed;

• higher rate taxpayer, the first £500 of savings income you earn is untaxed;

• additional rate taxpayer, you do not receive any PSA. Remember, the additional rate
threshold falls by almost £25,000 in 2023/24.

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