2022 is proving to be a struggle for many of us financially. Inflation and the rising cost of living is already proving challenging for many and UK taxpayers should brace themselves for tax hikes in April. Here’s a summary of changes being introduced this year which may affect you if you pay tax in the UK.
Which UK taxes are affected by changes in 2022?
In his Autumn 2021 budget, Rishi Sunak announced changes which will affect those who pay the following UK taxes:
- National Insurance
- Dividend income
- Capital gains tax
- Inheritance tax
- Income tax in Scotland
Below is a brief summary of each of these changes.
Changes to UK National Insurance payments in April 2022
With the UK in the midst of a cost of living crisis, there have been calls to delay the proposed National Insurance rises but these have fallen on deaf ears and rates will increase from April 2022.
The 1.25% rise in NI rates is being billed as a health and social care levy and the funds raised are earmarked to tackle the crisis in NHS and social care. In 2022 this will be lumped in with NI although from April 2023 the levy will be charged separately.
There is some good news for those on low incomes: the threshold above which NI is payable is rising by 3.1% from April, in line with the September 2021 inflation rate, from £9,568 to £9,880. However, this rise is not in line with current inflation rates. To tackle this, Sunak announced an emergency measure on 23rd March, promising a further rise in July 2022 to £12,570. The upper earnings National Insurance threshold is frozen at £50,270.
Many of our British expatriate clients living in Asia pay Class 2 NI contributions to maintain their NI record and be eligible for a full UK state pension when they reach retirement age. These are rising from £3.05 to £3.15 per week (an increase that shouldn’t break the bank!).
If you have previously worked in the UK and have a National Insurance record and you aren’t already paying Class 2 contributions, it is definitely worth looking into applying to pay these. You can even backpay a certain number of years. This could be an inexpensive way to guarantee yourself over £9,000 of income per year when you retire. You’ll find more information about securing a full UK pension in this blog post.
Changes to UK tax on dividends in April 2022
The dividend tax rate in the UK is also rising by 1.25% in April 2022. This tax applies to investors who earn money from company shares. It does not apply to investments held within an ISA wrapper.
The dividend allowance – the amount you can earn from dividends without paying any tax – will remain at £2,000 in the 2022-23 tax year.
Dividend taxes are linked to income tax bands. This table shows the rates for basic, higher and additional rate taxpayers:
| Income tax band | Dividend tax rate 2021-22 | Dividend tax rate 2022-23 |
| Basic rate | 7.5% | 8.75% |
| Higher rate | 32.5% | 33.75% |
| Additional rate | 38.1% | 39.35% |
Changes to UK capital gains tax reporting
This change, introduced last year, will affect anyone who makes a capital gain upon selling a property in the UK. The window within which a taxpayer can report a gain and pay the tax owed has increased from 30 to 60 days. Note that capital gains tax applies to second homes and buy-to-let properties but NOT a main residence.
Capital gains should be reported to HMRC by submitting a residential property return. Tax owed should be estimated and paid on account within 60 days of the gain being made. Failure to do so could result in a penalty and a levy of interest payments.
Changes to UK inheritance tax reporting in 2022
Introduced at the beginning of the year, this rule change applies to excepted estates. If an estate is classed as ‘excepted’ and there is no inheritance tax to pay, the heirs may not be required to report the estate’s value. More estates will now fall into this category than previously.
According to legislation introduced on 1st January 2022 excepted estates are those which meet any of the following criteria:
- The value of the estate is below the inheritance tax threshold (currently £325,000)
- The value of the estate is worth less than £650,000 and any unused threshold is being transferred from a spouse or civil partner who died first
- The value of the estate is less than £3m and the deceased left everything to a surviving spouse or civil partner who lives in the UK or to a qualifying registered UK charity
- The estate is worth less than £150,000 and the deceased has been living permanently outside the UK upon death
Inheritance tax can be a thorny issue for UK domiciled individuals living in Asia. We highly recommend that you take advice on this, particularly if your partner is not UK domiciled as IHT may be payable on an estate left to them. Find out more here.
Changes to income tax thresholds in Scotland in April 2022
As Scotland is devolved from the UK, taxpayers there pay different rates to those in other parts of the UK.
The Scottish parliament announced its draft budget in December 2021, which included plans to raise some income tax thresholds from April 2022. The table below shows the old and new thresholds.
| 2021-22 | 2022-23 | |||
| Tax band | Income | Tax rate | Income | Tax rate |
| Personal allowance | Up to £12,570 | 0% | Up to £12,570 | 0% |
| Starter rate | £12,571-£14,667 | 19% | £12,571-£14,732 | 19% |
| Basic rate | £14,668-£25,297 | 20% | £14,733-£25,688 | 20% |
| Intermediate rate | £25,297-£43,663 | 21% | £25,689-£43,662 | 21% |
| Higher rate | £43,663-£150,000 | 41% | £43,663-£150,000 | 41% |
| Top rate | More than £150,000 | 46% | More than £150,000 | 46% |
For further information on income tax in Scotland consult the government website here.
Infinity clients who have any questions about how these changes might affect them are invited to contact their financial adviser.
If you are a British expatriate in Asia and you don’t already have a financial adviser, we recommend you contact us to discuss your situation. As an expatriate you have access to a wide range of financial products which may be better suited to your residence status than products you invested in while living in the UK. Our knowledge and expertise could boost your savings and help you build wealth while you are living abroad.
Why not contact us for a chat!
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