The Government has made lots of changes to the tax system that mean millions more people will pay tax this year, through a variety of ways.

There are various estimates of how much extra taxpayers will pay, but Resolution Foundation puts it at £40 billion a year by 2027-28 – which is far more than the original £8 billion a year suggestion.

There are lots of reasons you might pay more tax, and more than one could apply to you. Let’s look at them in detail.

You have an income from dividends

Lots of people will find they are hit with extra tax this year if they get an income from dividends, and even people with small amounts of income from dividends could be hit with tax from next April.

The Government’s move to reduce the tax-free allowance for dividends from £2,000 last year, £1,000 this year and down to £500 from April 2024 will mean that an estimated 1.8 million extra people will be pushed into paying dividend tax by the end of the next tax year, when compared to 2022/23*.

If you have income from investments that are outside an ISA or pension and exceed the dividend allowance, you’ll need to file a self-assessment tax return to declare that income and pay any tax due.

You have gains on property or investments you’ve sold

The Government has also cut the tax-free limit for capital gains tax, meaning that you can only generate £6,000 of gains tax-free and from April next year it will drop to £3,000 – anything over that amount you have to pay tax on.

HMRC estimates show that 260,000 individuals and trusts will pay capital gains tax for the first time over the next two years.

If you’re sitting on big gains, you can stagger realising them over multiple tax years if it’s investments you’re selling. But that’s not possible if you’re selling a property, meaning that many second-home owners or landlords will be hit with a bigger tax bill. As with dividend tax, you’ll need to file a self-assessment return with HMRC to declare any gains over your tax-free allowance.

You have generated a better return on your savings

The personal savings allowance has previously protected most people from paying tax on their savings, giving basic-rate taxpayers a £1,000 annual limit and higher-rate taxpayers a £500 limit.

But rising interest rates on savings mean that savers only need to have relatively modest amounts in their accounts before they hit this limit – assuming they’re getting market-leading returns on their cash savings.

In the current tax year, it’s estimated that 970,000 more people will pay tax on their savings, when compared to the previous tax year*.

Anyone who owes tax on their savings doesn’t need to declare it. HMRC will collect the information from banks and building societies and adjust your tax code to recoup any money owed – and will send you a letter beforehand detailing what you owe.

You’ve hit the child benefit high income charge

Parents can claim child benefit for their offspring, but once you hit a certain income level you start to lose it.

The high-income child benefit charge is applied where child benefit is claimed and one or both parents have an income over £50,000.

Child benefit is withdrawn at a rate of 1% for each £100 of earnings over £50,000, meaning eligibility for child benefit is lost entirely where one partner earns £60,000 or more.

Because of wage growth lots of people will have had a pay rise that’s pushed them past this £50,000 earnings limit and now will owe money to the taxman. While not strictly a tax, this reduces your earnings.

Anyone in this camp needs to file a self-assessment tax return to declare that they have effectively been overpaid child benefit and repay the money.

You’ve benefitted from a pay rise

As inflation has been higher, so too have wages. It means that lots of people have seen decent pay rises, particularly in comparison to previous years.

Frustratingly, wages have generally been lower than inflation – meaning your salary could be failing to keep up with rising prices.

But what’s also annoying is that you’ll be paying more tax on the money than you would have – because the Government has frozen tax bands.

Generally, the amount you can earn before you start paying tax or paying higher-rate tax rises with inflation each year – which would have been a chunky increase in the past couple of years. But
the Government has frozen the bands, meaning your pay rises could well push you into the next tax bracket.

You won’t need to file a tax return, assuming you’re paid via PAYE, but you’ll just be handing over more to the taxman than you otherwise would.

You’re a higher earner who now hits the highest tax band

The threshold for the highest rate of tax – 45% – was lowered in April, meaning that anyone with income of more £125,140 will pay this rate. Previously you could earn up to £150,000 before paying it. As a result, there are 55% more people expected to fall into the additional rate tax band in the current tax year.

It means that if you earn more than this amount or have had a payrise that pushes you over it, you’ll pay more tax than you would have had the threshold remained the same.

* Based on figures released by HMRC under separate Freedom of Information requests made by AJ Bell.

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