Capital gains tax allowance will be halved
If you own investments outside an ISA or are planning to sell a second home or other valuable asset(s), you need to be aware of upcoming cuts to tax-free allowances.
Under current rules, you can make gains of up to £6,000 before paying any tax (down from £12,300 in 2022-23). From April 2024, the capital gains tax allowance will be reduced again to just £3,000.
Dividend allowance also to be halved
Whilst the tax rates on dividend income are set to remain at their current levels, from 6 April 2024 the Dividend Allowance will reduce from £1,000 to £500. This will affect an estimated 4.4 million individuals in 2024/25, being around £155 worse off as a result.
ISA limits frozen
The limits on Individual Savings Accounts (ISAs), Junior ISAs, Lifetime ISAs and Child Trust Funds (CTFs) will be frozen for 2024/25. However, from April 2024 changes will be made to permit multiple subscriptions to ISAs of the same type every year and to allow partial transfers of ISA funds in-year between providers.
Pensions Lifetime Allowance to be abolished
From 2024/25, the Pensions Lifetime Allowance (LTA) will be abolished, leaving a tax regime where you can take as much income as you want from your pension (albeit still subject to income tax) and checks will only be made on lump sums taken.
As a result of the abolition of the LTA, two main new allowances are being created:
- An individual ‘lump sum allowance’ set at £268,275 (a quarter of the current £1,073,100 lifetime allowance) – measuring the tax-free cash taken over someone’s lifetime.
- An individual ‘lump sum and death benefit allowance’ set at £1,073,100 – incorporating tax-free lump sums someone takes while alive, plus any serious ill health lump sum and lump sums paid out when they die.
There will be a third allowance – an overseas transfer allowance – also set at £1,073,100, measuring the value of pension benefits transferred to qualifying overseas pension schemes.
Someone who exceeds any of these allowances will see the excess taxed in the same way as income.
Changes to NICs
At the 2023 Autumn Statement, Chancellor Jeremy Hunt announced significant changes to the National Insurance contributions (NICs) system. From 6 January 2024, the government will cut the main rate of Class 1 employee NICs from 12% to 10%, providing a tax cut for an estimated 27 million working people. The government stated that the average worker earning £35,400 will receive a tax cut of more than £450 in 2024/25.
For self-employed workers, from 6 April 2024, those with profits above £12,570 will no longer be required to pay Class 2 NICs. They will, however, continue to receive access to contributory benefits such as the State Pension. For self-employed workers with profits between £6,725 and £12,570, they will continue to have access to contributory benefits through a National Insurance credit, without paying NICs. Those with profits under £6,725 and others who pay Class 2 NICs voluntarily to receive access to contributory benefits will continue to be able to do so. Additionally, from 6 April 2024 the government will cut the main rate of Class 4 self-employed NICs from 9% to 8%. According to the government, the cut will benefit around two million individuals.
Merging R&D and SME schemes
The Research and Development Expenditure Credit (RDEC) and SME schemes will be merged, with expenditure incurred in accounting periods beginning on or after 1 April 2024 being claimed in the merged scheme.
Changes to business rates in England
From 1 April 2024, the small business multiplier will be frozen for another year in England. The 75% Retail, Hospitality and Leisure relief will be extended for 2024/25. The standard multiplier will be uprated in line with September’s Consumer Prices Index.
The National Living Wage and National Minimum Wage
The government accepted the recommendations of the Low Pay Commission and announced increased rates of the National Living Wage (NLW) and the National Minimum Wage (NMW) which are set to take effect from 1 April 2024. Additionally, from this time the NLW will be extended to 21 and 22-year-olds.
The rates applicable from 1 April 2024 are as follows:
|From 1 April 2024
The apprenticeship rate applies to apprentices under 19 or 19 and over in the first year of apprenticeship. The NLW applies to those aged 21 and over.
Budget 2024 – Further tax changes on the way?
With the next Budget set to take place on the 6 March 2024, we may see further tax changes announced this year. With the Chancellor keen to appease voters ahead of a general election which must take place before the end of January 2025, there is media speculation that we could see cuts to income tax and inheritance tax in the Budget.
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