Starting from April 6th, 2024, a few changes have been made to the tax rates and allowances that might affect you. These changes include a reduction in National Insurance, adjustments to the amount of money you can earn tax-free from various investments, and changes in the amount of money you can save in your pension. Additionally, the state pension and child benefit rates have increased. It is important to know about these changes and how they could impact your finances in the future. Decisions you make now could affect how much you owe in taxes in the upcoming years and you may incur new liabilities that mean you have to complete a self-assessment tax return for the first time.
1. Capital gains allowance has shrunk
The CGT (capital gains tax) allowance has been cut from £12,300 to £6,000 for the 2023/24 tax year, with the annual exemption halving to just £3,000. Treasury revenue from CGT has increased by 84% to £16.9 billion in 2022-23. Households with investments held outside of tax wrappers need to be cautious to avoid being caught out by the narrowing CGT exemption. Tactics to minimise CGT liability include moving investments to ISAs or pensions, disposing of loss-making assets to offset against a capital gain, and transferring assets to a spouse to utilise their allowance.
2. The Higher rate of capital gains tax on property has been cut
From 6 April 2024, the capital gains tax (CGT) rate on second homes and buy-to-lets for higher-rate taxpayers will fall from 28% to 24%, but the basic rate for CGT on residential properties remains at 18%.
The reduction in the CGT rate will benefit higher-rate taxpayers with significant gains, but those with modest gains will feel the impact of the halving of the annual exemption. The CGT rate on residential property remains 4% higher than the rate applied to most other asset classes. The reduction in the higher CGT rate aims to encourage landlords and second homeowners to sell their properties, making more available for buyers, including those looking to get on the housing ladder for the first time.
3. The Dividend allowance has halved
The annual allowance for dividends has halved for the 2024-25 tax year to just £500, having been reduced from £2,000 to £1,000 in 2023/24. Financial institutions may advise people to move their money to a pension or ISA account to reduce their tax bill. Transferring assets to a spouse can also make use of their tax-free and ISA allowances. Dividend tax is significantly higher for higher and additional-rate taxpayers (33.75% and 39.35% respectively) compared to basic rate taxpayers (8.75%), so that cohort should be aware of the tax implications going into the 2024/25 fiscal year.
4. National insurance has been reduced
Millions of workers will see a reduction in their National Insurance tax in their April pay checks. The rate of class 1 NI contributions has been reduced from 12% to 8%, which will save hundreds of pounds per year for employees.
Self-employed individuals will also benefit from a reduction in class 1 from 9% to 6%, and class 2 will no longer be applicable. Those with a £35,000 salary will save around £450 annually, while those earning over £50,270 will save £750 per year.
5. The pension lifetime allowance has changed
The United Kingdom government has abolished the pension lifetime allowance, starting from the 2024-25 tax year. Two new allowances have been introduced, including the lump sum allowance and the lump sum and death benefit allowance, to limit tax-free pension lump sums. This decision has been welcomed by many pension savers, while some may be feeling apprehensive due to the uncertainty of whether it could be reversed by a future government.
6. The State pension has increased
Retirees have seen a significant increase of 8.5% in their state pension this month, which exceeds inflation rates. The full new state pension has risen by almost £20 per week, now standing at £221.20. This new amount equates to an annual entitlement of £11,502, which is £902 more than the previous annual entitlement of £10,600. Additionally, the full basic state pension has also gone up from £156.20 to £169.50 per week, providing an annual entitlement of £8,814. This increase officially took place on Monday 8th April.
7. Child Benefit has also been increased and extended
Child benefit rules have changed, effective from 6th April. Parents earning between £50,000 and £80,000 will now receive some or all of the benefit. The threshold to lose child benefit payments will increase from £50,000 to £60,000 for the 2024/25 tax year. Families will continue to receive some child benefit up to when the highest earner earns £80,000, with the previous cut-off being £60,000. The rate of child benefit has increased, with families receiving up to £1,331 per year for one child and up to £881 per year per additional child. There is no limit to how many children families can claim for.
As a new financial year commences, staying updated on tax changes and allowances is crucial. With adjustments to tax rates, investment thresholds, and pension savings, it’s essential to mark important dates and deadlines on your calendar. This becomes even more important in a leap year, where additional considerations may arise. By staying informed and proactive, you can effectively manage your finances, make informed decisions, and ensure compliance with tax regulations. Keep an eye on key dates for filing returns, claiming deductions, and maximising your financial opportunities. Stay ahead of the curve and take control of your financial future starting from the beginning of the calendar year.