New tax year, new...

We hope we’re the only ones wishing you a happy new tax year but we’d love to know if someone’s beaten us to it. 

Tax years are a funny thing, running from 6 April one year to 5 April the following year. Apparently this was decided by HM Treasury back in the 18th and 19th century to make sure no tax revenue was lost due to leap years. 

Anyway, the less tax history, the better. Here’s a rundown of the key things investors need to know about life in the tax year 2022/23.

What’s changed?

The good news is not too much has changed, most allowances and tax rates are the same as last year. 

The key change investors need to be aware of is the 1.25% rise in dividend tax rates. So we’ll start there.

‍How much are dividends taxed?

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Remember this tax doesn’t kick in straight away as soon as we get a dividend. We all have an annual £2,000 dividend allowance to use up before even having to think about paying any tax. 

And if your investments are held in a tax-efficient account like an ISA or SIPP, you can stop reading now. You won’t have to worry about UK dividend income tax at all.

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Here’s a quick example 

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Let’s say your salary is £30,000 and in the same year, you’re paid £5,000 in dividends from your investments. Because of the level of your salary, you’ve already used your personal allowance (the first £12,570 of any income that you don’t have to pay tax on). 

And after also taking into account your £2,000 dividend allowance, the dividend income you could owe tax on is £3,000.

If your investments are held in an ISA or SIPP, you won’t owe any tax. But if not, you’ll likely have some tax to pay on this dividend income. How much tax depends on whether you’re a basic, higher or additional rate taxpayer. 

• Basic rate taxpayers now pay 8.75% tax on dividends, so you’d owe £263
• Higher rate taxpayers now pay 33.75% tax on dividends, so you’d owe £1,013
• Additional rate taxpayers now pay 39.35% tax on dividends, so you’d owe £1,181

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What’s stayed the same?

There are a few key taxes to be aware of as an investor. 

Dividend tax (we’ve covered), capital gains tax (a tax on profits made when you sell your investments) and income tax on interest (which taxes interest earned on cash savings or interest you’re paid from bond investments). 

Key investment taxes for the tax year 2022/23.

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How to worry less about taxes 

The answer to this can be simple. 

Think about putting your investments in a tax-efficient investment account like an ISA (individual savings account) or a SIPP (self-invested personal pension). 

Inside both accounts, you won’t have to worry about capital gains tax or UK income tax on dividends or interest. 

You can invest up to £20,000 in a stocks and shares ISA each tax year and while there are a few more ins and outs to be aware of, most savers can put up to £40,000 into a SIPP (pension) each year. 

And as the new tax year has just dawned, these allowances have just reset too. 

That’s probably enough tax chat for everyone for quite a while, so we’ll stop there.

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For help comparing different accounts take a look at our guides GIA or ISA and SIPP vs ISA. For tips on how to make the most out of tax-efficient accounts, check out our ISA guide and SIPP guide. And to find out what investors put in their ISAs check out Top ISA buys.  

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