What changed in tax and pensions this year and what to expect in 2023

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Keep on top of the tax and pension changes that came in during 2022 and get ready for the changes that could affect your personal finances in 2023.

2022 was a year of change when it comes to money matters. With rising inflation and interest rates, numerous Budgets and even some U-turns, it can be hard to keep track of what’s going on.

Some of these changes are already in place and more will come into effect in 2023. Don’t worry if you’re not feeling on top of it all, we’ve got a quick re-cap of what you need to know.

Is the State Pension increasing?

The State Pension will rise by 10.1% from April 2023, as confirmed in the Autumn Statement. This will affect you whether you’re eligible for the new flat-rate State Pension, which was introduced in April 2016, or the older basic State Pension.

From April 2023, those qualifying for a full new State Pension will receive £203.85 a week (up from £185.15). And those who reached State Pension age before April 2016, who are on the older basic State Pension, will now receive £156.20 – up from £141.85. You can check your own State Pension forecast on the government’s website.

The increase is because of the reinstatement of the ‘triple lock’ guarantee. The triple lock usually means that State Pension payments rise each year by the highest of inflation, average earnings growth or 2.5%. But the average earnings growth measure was suspended for the 2022-23 tax year by the government because a rise in wages following coronavirus would have meant a much higher increase in State Pensions.

Even with the increase in April 2023, the State Pension on its own would give you less each year than a minimum wage salary. So it should only form part of your retirement income plan if you hope to enjoy a comfortable retirement.

Will the State Pension age stay the same?

The State Pension age is due to increase over the next 25 years. A review of the State Pension age is currently being carried out which will decide if this timescale is still appropriate.

The Secretary of State for Work and Pensions is due to publish the government’s review of the State Pension age in early 2023. The review will need to carefully balance important factors including economic sustainability and context, the latest life expectancy data and fairness to both pensioners and taxpayers.

Which tax allowances are staying put?

The standard Personal Allowance – how much you can earn before paying income tax – is £12,570 for the 2022-23 tax year. It will be frozen at this level until April 2028.

The thresholds for the basic rate (20%) and higher rate (40%) bands have also been frozen until 2028. You can find more detail on current income tax rates and bands at gov.uk. Keep in mind that tax bands and rates are different in Scotland.

The ISA (Individual Savings Account) allowance in 2022-23 will stay at £20,000. That means you can save up to £20,000 in a Cash or Stocks & Shares ISA, or a combination of both. The Junior ISA (JISA) allowance stays at the current level too, which is £9,000.

The limits on the nil and residential rate bands for inheritance tax have also been frozen until April 2028.

Will the additional-rate tax threshold be lower?

The only change to tax bands is for the people in the additional-rate tax bracket. In the Autumn Statement it was confirmed that the threshold for the 45% tax band will reduce from £150,000 to £125,140 from April 2023.

Other tax changes to know about

Capital gains tax

Capital gains tax (CGT) is a tax you pay on the profit when you sell something that has increased in value. The amount you’re exempt from paying tax on is being reduced from £12,300 to £6,000 from April 2023, and then to £3,000 from April 2024.

Stamp duty

The amount at which you pay stamp duty has doubled from £125,000 to £250,000. This means that you won’t need to pay stamp duty on properties that are worth less than £250,000.

The stamp duty threshold for first-time buyers has increased from £300,000 to £425,000. And the maximum value of a property on which first-time buyers' relief can be claimed has also increased from £500,000 to £625,000.

These changes came into effect on 23 September 2022 and will remain in place until 31 March 2025. These changes only apply in England and Northern Ireland as property is taxed differently in Scotland and Wales.

Are pension allowances changing?

The pension Annual Allowance is the total amount that you, your employer and any third party can pay in across all your pension plans in a tax year. The standard Annual Allowance is currently £40,000 and above this figure you could get a tax charge. It will remain at £40,000 for the 2022-23 tax year. The new tax year starts in April, so you still have plenty of time to take advantage of this year’s allowances if you want to.

If you haven’t used all your allowance in the last three tax years, it might be possible to pay more into your pension plan by ‘carrying forward’ whatever allowance is left to make the most of the tax relief on offer.

In some circumstances, your Annual Allowance might be less than £40,000. For example, if you start taking money from your pension plan, your Annual Allowance might be lowered to £4,000.

Also, if your ‘adjusted income’ (which includes not only your salary but things like pension savings and other income) is £240,000 or more, your Annual Allowance could be reduced. 

To find out more, visit our Annual Allowance page. Standard Life customers can check their pension online or using our mobile app.

Your pension Lifetime Allowance is the total amount of pension benefits that you can build up during your lifetime across all pension schemes before an additional tax charge applies. For the 2022-23 tax year, it is set at £1,073,100. There weren’t any changes to the amount in the Autumn Statement. The standard Lifetime Allowance has been at this level since 2020 and is currently due to stay frozen there until 2026.

What cost-of-living support is there for pensioners?

Increase in Pension Credit

The standard minimum income guarantee for those receiving Pension Credit will also increase in line with inflation – 10.1% – from April 2023. This will mean pensioners on the lowest incomes are protected from inflation and don’t lose some of their State Pension increase in the Pension Credit means test.

The Scottish and Northern Irish governments will decide their own increases for Pension Credit.
Not sure if you’re eligible for pension credit? Find out how to check in our article.

Housing benefit for those with Pension Credit

The government’s plans to create a new housing element of Pension Credit to replace pensioner Housing Benefit are now intended to take effect in 2028-29. Eligible pensioners will continue to receive Housing Benefit.

Cost-of-living payment

The government will provide households on means-tested benefits with an additional £900 cost-of-living payment in 2023-24.

Pensioner households will get an additional £300 and individuals on disability benefits will get an additional £150 in 2023-24.

More changes to come next year?

We’ll keep you up to speed with whatever changes the new year brings, especially as the new tax year approaches in April. Visit the MoneyPlus website where all our tips and guidance can be found.

If you’re a Standard Life customer, keep in touch with your pension plan by logging in online.

The information here is based on our understanding in December 2022 and shouldn’t be taken as financial advice.

A pension is an investment and its value can go down as well as up and may be worth less than was paid in.

Your own personal circumstances, including where you live in the UK, will have an impact on the tax you pay. Laws and tax rules may change in the future.