6 April signals the start of the new tax year. So, ahead of the deadline, it’s your opportunity to get your ducks in a row and understand any forthcoming changes that could impact your finances.
There are several changes to taxes, allowances, and pensions coming in the new tax year, some of which have already been introduced in part.
It is important to be aware of these so that you can plan your finances in the most tax-efficient way.
Read on to find out about five changes to taxes, allowances, and pensions coming in April 2024 that you need to know about.
1. Abolition of the Lifetime Allowance
The Lifetime Allowance (LTA) represents a limit on how much pension savings you can accrue in your lifetime without paying an additional tax charge when you come to access them.
In the 2023 Spring Budget, the chancellor announced that he was scrapping the LTA tax charge, and that the LTA will be abolished in the 2024/25 tax year.
Previously, you would face a tax charge depending on how you withdrew money from your pension that exceeded your LTA. If you took the excess as a lump sum, it was liable to a 55% tax charge, while if you received it as income, you faced a tax charge of 25%. Both were in addition to Income Tax at your marginal rate.
From the start of the 2024/25 tax year, you will be able to save more in your pension pot without paying additional tax when you come to access it.
So, if you’ve limited your pension contributions to avoid the LTA charge, you may want to review whether making additional contributions could be beneficial.
2. Reduction in the Capital Gains Tax Annual Exempt Amount
You will usually pay Capital Gains Tax (CGT) on gains you make when you sell or dispose of certain assets including:
- Most personal possessions worth £6,000 or more, apart from your car.
- Property that’s not your main home.
- Investments that aren’t held in a tax-efficient wrapper, like an ISA or pension.
However, you benefit from an Annual Exempt Amount that, in 2023/24, lets you make £6,000 of gains before any CGT is due (this exemption is £3,000 for most trustees).
From 6 April 2024, the Annual Exempt Amount reduces to £3,000 for individuals and £1,500 for trustees.
Once you exceed the Annual Exempt Amount, the rate of CGT you pay depends on which Income Tax band you are in.
- Higher- and additional-rate taxpayers pay 20%, rising to 28% on gains from residential property.
- Basic-rate taxpayers pay 10%, rising to 18% on gains from residential property.
With the reduction in the CGT Annual Exempt Amount imminent, you might consider crystallising gains up to the threshold before 5 April, so you can make the most of the current Annual Exempt Amount before it is reduced.
If you have already used your full Annual Exempt Amount, you could consider transferring assets to a spouse or civil partner and make the most of their Annual Exempt Amount as well.
Additionally, making the most of ISAs – where interest or returns are free from CGT – can help you reduce your tax liability.
3. Reduction in the Dividend Allowance
The Dividend Allowance is the maximum amount of tax-free dividend income (in addition to the Personal Allowance) that you can earn each year before it is potentially liable for Dividend Tax. This includes dividends generated from investments, as well as any you receive from a company you own or have shares in.
The Dividend Allowance will halve from £1,000 to £500 from 6 April 2024. Consequently, you may pay more tax on dividends than in previous tax years.
The tax you pay on dividends above the Dividend Allowance is based on your Income Tax band:
- 8.75% for basic-rate taxpayers
- 33.75% for higher-rate taxpayers
- 39.35% for additional-rate taxpayers.
To reduce the impact of Dividend Tax on your dividend income, you might consider holding any dividend-paying investments in a Stocks and Shares ISA, if possible, as any dividends within the ISA wrapper are not subject to Dividend Tax.
4. Cuts to National Insurance contributions
Cuts to National Insurance contributions (NICs) were one of the headline announcements in the Autumn Statement. Some of the cuts already came into effect on 6 January 2024, while others will happen on 6 April.
Class 1 contributions, paid by all employees, were cut from 12% to 10% from 6 January. If you are employed on a salary of £50,000, the Class 1 NICs reduction will save you around £748 a year.
Class 2 contributions, a flat rate paid by self-employed workers who make £12,570 or more in annual profits, will no longer be a requirement from 6 April 2024.
If you have profits above £6,725, you will continue to get access to contributory benefits including the State Pension through a National Insurance credit without paying NICs as you do currently.
Class 4 contributions, paid by self-employed workers who make £12,570 or more in annual profits, will be cut from 9% to 8% from 6 April 2024.
The cuts to Class 2 and 4 NICs will save self-employed workers an average of £350 a year.
5. Increase in the State Pension
The State Pension is set to increase by 8.5% in April 2024. This is the second-biggest increase to the State Pension on record.
This increase means that if you qualify for a full State Pension, you will now receive £221.20 a week (£11,502 a year), up from £203.85 (£10,600 a year).
If you are nearing retirement and you are not on course to make your full 35 qualifying years of contributions, you might consider making additional voluntary contributions or purchasing National Insurance credits to ensure you reap the benefits of the increase in the State Pension.
Get in touch
If you’d like to find out more about how these 2024/25 changes will affect you, please get in touch. Email info@blueskyifas.co.uk or call us on 01189 876655.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.