Navigating changes to UK tax 2024

The Chancellor, Jeremy Hunt, recently delivered his ‘Budget for Long-Term Growth on 7th March 2024, announcing the latest raft of tax changes to contend with, many of which will come into effect from 6th April 2024. This all follows huge pension change announcements last year and the continued effects of the stealth taxes hitting us all. Navigating all of these can be hard so here’s a look at some of the key changes that might affect you this coming new tax year.

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National Insurance Changes

The national insurance rate for employees had previously been cut from 12% to 10%, with this change coming into effect on 6th January 2024. This is being further reduced by 2% to 8% from 6th April 2024, with both cuts applying to earnings between £12,570 and £50,270 per tax year. 

The Treasury says the average worker on £35,400 per year will save more than £900 a year as a result of both of these cuts in January and April. This figure rises to over £1,500 for anyone who is employed and a higher rate taxpayer. 

For the self-employed, the Government will reduce the main rate of Class 4 national insurance contributions from 9% to 6% from April 2024. This is an increase on the 1% cut that was previously announced at the 2023 Autumn Statement from 9% to 8%. Class 4 national insurance contributions apply to earnings between £12,570 and £50,270 per tax year. This could result in a potential saving of over £1,100 if you are self-employed with earnings over £50,270 per tax year.

The Government is also scrapping Class 2 national insurance contributions for the self-employed. Prior to 6th April 2024, you pay Class 2 national insurance contributions at £3.45 a week (£179.40 per year) if your self-employed profits are £12,570 or more for a tax year.

Abolition of the Lifetime Allowance, what does this mean? 

The lifetime allowance, a limit on how much you can build up in pension benefits over your lifetime while still enjoying full tax benefits, is being scrapped from 6th April 2024. The lifetime allowance for the 2023/24 tax year is £1,073,100.
This removal of the lifetime allowance follows the removal of the lifetime allowance tax charge from 6th April 2023. Prior to 6th April 2023, any withdrawals above the lifetime allowance limit were subject to 55% if taken as a lump sum, or 25% plus your marginal rate of income tax if taken as income. From 6th April 2023 up to 5th April 2024, any excess over the lifetime allowance (whether taken as a lump sum or income) is subject to your marginal rate of income tax. 

From 6th April 2024, the tax-free lump sum which can be taken from a pension pot (after the age of 55) will remain at 25% of the current lifetime allowance, equivalent to £268,275. This tax-free lump sum limit will be known as the Lump Sum Allowance (LSA). Any withdrawals above your LSA will be subject to your marginal rate of income tax.

Transitional protections may continue to apply, so it is worth checking whether the changes to the lifetime allowance may impact your tax-free cash entitlement.

An additional complication is Labour have indicated that should they be elected in the next general election, they plan to reverse the removal of the lifetime allowance. As ever, it is critical to keep on top of current legislation.

Changes to Capital Gains Tax  

If you hold investments outside of tax-efficient wrappers such as ISAs and pensions, or are planning to sell a second property, you should be aware of the cut to the capital gains tax (CGT) annual exemption. 
Within the 2022/23 tax year, the annual CGT exemption below which you would pay any tax on capital gains was £12,300 per tax year. This was cut to £6,000 from 6th April 2023, and will be reduced further to £3,000 from 6th April 2024, less than a quarter of what the exemption was in the 2022/23 tax year.

Capital gains tax on second property sales

The higher rate of CGT on residential property sales (excluding your main residence which is not subject to CGT typically) for higher and additional rate taxpayers will be reduced from 28% to 24% from 6th April 2024. This is in a move to try and encourage property sales in order to generate further tax revenue despite the cut in the tax rate.

The rate of CGT on residential property sales for basic rate taxpayers will remain at 18%. 

The CGT rates for any other asset sales will remain at 10% for a basic rate taxpayer and 20% for higher and additional rate taxpayers.

What is happening to the dividend allowance? 

Whilst the tax rates on dividend income will remain unchanged in the new tax year, similar changes are being made to the dividend allowance (as per the CGT allowance) which is being halved. The dividend allowance (below which no tax is payable on dividends) stood at £2,000 per individual per tax year, was reduced to £1,000 from 6th April 2023 and will be halved once again to £500 from 6th April 2024.

These changes make it even more important to be making use of your annual tax-efficient allowances, to reduce any potential tax liability on capital gains and investment income.

One implication of these changes is more individuals will fall above these tax-free thresholds, resulting in the potential need to complete a self-assessment tax return if not doing so already. 

Please do get in touch if you are unsure whether you will be affected by the reduction in these allowances.

High Income Child Benefit Charge (HICBC)

In order to support working families, the threshold to start paying back Child Benefit will be increased from 6th April 2024 from £50,000 to £60,000 per tax year. This applies to the highest earning partner for a couple.

The rate at which the Child Benefit is taxed away completely is being made more favourable, with 1% of the benefit taxed away for every extra £200 you earn above the threshold (instead of 1% for every extra £100 above the threshold in the 2023/24 tax year).

This means that the upper income threshold, where the Child Benefit is effectively taxed in full, is rising from £60,000 to £80,000.

From April 2026 (subject to consultation), the Government is planning to move to a household income system for administering the tax charge, rather than on an individual basis, so single earner families are not disadvantaged.

Further investment in UK businesses?

A new “British ISA” was announced in the Spring Budget following widespread speculation. This will be a further £5,000 tax-free ISA allowance for investments into British companies, and will be in addition to the standard £20,000 ISA allowance which is remaining unchanged.

Further details to follow including when this will be available.

“Stealth Taxes” – what are they?

Although the freezing of some tax allowances not mentioned above may look like a ‘neutral’ move with limited impact on your situation going into the new tax year, it is important to be aware of “stealth taxes”. While income tax bands, which are frozen until 2028, will remain unchanged from 6th April 2024, if your wage is increasing year on year (for example to account for inflation), you will be subject to a greater tax liability. 

Similarly, the Savings Allowance for savings interest, as well as the Inheritance Tax threshold (Nil Rate Band), are remaining at the same levels going into the new tax year, pulling more and more people into paying these taxes.

These stealth taxes, if left unattended, will be a drag on your income and accumulated wealth. 

Do I need to take any action?

With widespread changes across the tax landscape, it is as important as ever to ensure you are making use of the key allowances applicable to your personal situation, and minimising the amount of tax you pay on your income and/or wealth. 

If you’d like to learn more about what the changes will mean to you in the new tax year, why not get in touch and book in a free initial consultation with one of our expert advisers.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate estate planning or tax advice.