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16 Jan 2022

Five tax changes you need to know about in 2022

Most taxpayers will see their tax bills increase from April 2022

With 2022 set to be pretty tough on our finances, it's important to make sure you're clued up on the latest tax changes so you can plan ahead and avoid any fines for getting it wrong.

As announced in the 2021 Autumn Budget, many taxpayers will soon see higher tax bills for dividend income, along with National Insurance hikes - despite calls for the government to call them off.

There are also changes to be aware of if you make a capital gain, or have to pay inheritance tax on someone's estate.

Here, Which? explains what the tax changes are, and how they could affect your tax bill.

1. National Insurance threshold and rate changes

National Insurance rates are set to rise by 1.25 percentage points from 6 April 2022, as part of the government's plan to introduce a health and social care levy where working people contribute to fund the NHS and the social care crisis.

This will just be taken along with the rest of your National Insurance payment in 2022-23, but the plan is to officially split out the levy from April 2023.

April 2023 will also be the point where the levy is paid by those who are above state pension age, but still in work.

The National Insurance lower earnings limits will increase by 3.1% - in line with September 2021 CPI inflation. Upper earnings thresholds, however, are being frozen at £50,270. This means you'll be able to keep more of your money before National Insurance contributions (NICs) kick in, offsetting some of the effects of the rate rises.

The tables below show what National Insurance rates and thresholds are now in 2021-22 compared to what they will be in 2022-23 for employees and the self-employed.

Employees paying Class 1 NICs

Here's what employees paying Class 1 National Insurance will pay:

2021-222022-23
Earnings thresholdClass 1 rateEarnings thresholdClass 1 rate
Less than £9,5680%Less than £9,8800%
£9,568-£50,27012%£9,880-£50,27013.25%
More than £50,2702%More than £50,2703.25%

Self-employed paying Class 2 and 4 NICs

If you're self-employed, you may have to pay Class 2 and 4 contributions - depending on how much you earn.

2021-222022-23
Profits thresholdClass 2 and 4 ratesProfits thresholdClass 2 and 4 rates
Less than £6,5150%Less than £6,7250%
£6,515-£9,568£3.05 per week (Class 2)£6,725-£9,880£3.15 per week (Class 2)
£9,568-£50,2709% + £3.05 per week£9,880-£50,27010.25% + £3.15 per week
More than £50,2702% + £3.05 per weekMore than £50,2703.25% + £3.15 per week

Class 3 NICs

You may want to pay voluntary Class 3 contributions if you have any gaps in your National Insurance record that might affect your eligibility for the state pension, or other contribution-based benefits.

2021-222022-23
Class 3 contributions:£15.40 per weekClass 3 £15.85 per week

Find out more:National Insurances rates

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2. Dividend tax rates to increase

Similarly to the National Insurance rate rises, those who earn money from dividends will also see a 1.25 percentage point rise from April.

You may have to pay dividend tax if you're an investor that earns money from owning company shares; you're only charged tax on the amount you earn above the dividend allowance, which is £2,000 in 2022-23, unchanged from 2021-22.

The rate you pay depends on your income tax band, as shown in the table below:

Income tax bandDividend tax rate 2021-22Dividend tax rate 2022-23
Basic rate7.5%8.75%
Higher rate32.5%33.75%
Additional rate38.1%39.35%

Our dividend tax calculator can help you work out your potential tax bill.

Note that you won't be charged dividend tax on any investments held within an Isa wrapper - such as a stocks and shares Isa.

3. Scottish income tax thresholds to rise

Scottish parliament announced its draft Budget in December 2021, which contained proposals to raise some of its income tax thresholds from April 2022.

Income tax is devolved in Scotland, which is why there are different rates and thresholds to the other UK nations. The table below shows how much tax you are likely to pay in 2022-23 if you're a Scottish taxpayer.

2021-222022-23
Tax bandIncomeTax rateIncomeTax rate
Personal allowanceUp to £12,5700%Up to £12,5700%
Starter rate£12,570-£14,66719%£12,570-£14,73219%
Basic rate£14,667-£25,29720%£14,732-£25,68920%
Intermediate rate£25,297-£43,66321%£25,689-£43,66321%
Higher rate£43,663-£150,00041%£43,663-£150,00041%
Top rateMore than £150,00046%More than £150,00046%

These proposals will need to be approved by the Scottish Parliament and receive royal assent before they are brought into force.

4. Capital gains tax reporting extended

Another announcement in the Autumn Budget 2021 affects anyone who makes a capital gain after selling a property.

Previously, there had been a window of just 30 days for taxpayers to report the gain and pay the tax owed - as of the Budget on 27 October 2021 - this was immediately increased to 60 days.

In practice, this means anyone who makes a capital gain after selling a second home or buy-to-let property will need to submit a residential property return to HMRC, and make a payment on account for the estimated tax owed within 60 days of the gain being made.

This is only for properties sold on or after 27 October 2021.

If you sold property between 6 April 2020 to 26 October 2021, you would have been required to report and pay the CGT within 30 days.

Find out more:capital gains tax rates and allowances

5. Inheritance tax reporting change

This is another rule change that has already come into force - but only at the start of this year.

For anyone who dies on or after 1 January 2022, there are new rules about whether or not their estate can be classed as an 'excepted estate'.

Estates classed as being 'excepted' may not require heirs to report the estate's value - as long as there's no inheritance tax to pay, or any other reasons that mean the estate should be reported.

To count as an excepted estate on or after 1 January 2022, it must:

  • have a value below the inheritance tax threshold
  • be worth £650,000 or less and any unused threshold is being transferred from a spouse or civil partner who died first
  • be worth less than £3m and the deceased left everything in their estate to their surviving spouse or civil partner who lives in the UK, or to a qualifying registered UK charity
  • have UK assets worth less than £150,000 and the deceased had permanently been living outside of the UK when they died.

Find out more:inheritance tax thresholds, rates and who pays

File your 2020-21 tax return with Which?

If you haven't filed your self-assessment tax return for 2020-21 yet, the Which? tax calculator can help you tot up what you owe, and even suggests expenses and allowances you might have forgotten.

The online tool covers lots of different income sources, including capital gains, income from pensions, property, self-employment and income from abroad.

Try it for yourself at which.co.uk/money/tax-calculator.