22 March 2024
The new tax year on 6 April 2024 brings with it several significant changes that could have an impact on your finances.
Here’s a summary of the main tax changes.
1. Capital gains tax allowance will halve
Around a quarter (24%) of UK high-net-worth individuals say that changes to capital gains tax (CGT) are one of their biggest financial concerns over the next 12 months, according to an October 2023 survey of 600 UK-based high-net-worth individuals by RBC Wealth Management.
The CGT annual exemption more than halved from £12,300 to £6,000 in April 2023, and will drop again to £3,000 from April 2024, meaning many investors selling assets will face a higher tax bill.
Any gains that exceed the CGT annual exemption are taxed at 20% for higher rate taxpayers and 10% for basic rate taxpayers. The rate is higher for gains on second properties, at 28% and 18% respectively.
Michelle Holgate, financial planner at RBC Brewin Dolphin, says: “It’s important to make use of the exemption in full each year where appropriate, as you cannot carry this allowance over. If you’re married or in a civil partnership, consider making sure you use both your allowances in a single tax year.”
Making use of annual ISA allowances or saving into pensions could also help limit future capital gains tax, as funds held within these wrappers do not attract CGT.
2. National Insurance cut for the self-employed
Class 2 and Class 4 National Insurance Contributions (NICs), which are paid by self-employed people, are changing from 6 April 2024. Class 2 NICs will be abolished, while Class 4 NICs will be reduced from 9% to 8%, affecting those making a profit of more than £12,570 a year.
Class 2 NICs are currently £3.45 a week while Class 4 contributions are currently paid at a rate of 9% on profits between £12,570 and £50,270 (and 2% of profits over £50,270). The main Class 1 NICs, paid by employees, was reduced from 12% to 10% in January.
3. Dividend allowance will halve
From 6 April 2024, the dividend allowance will be cut to £500. This follows a significant reduction in the allowance from £2,000 in 2022/23 to £1,000 in the 2023/24 tax year. You may pay dividend tax if your total income (dividends and wages) exceeds your personal allowance (£12,570 in 2024/25) and the dividend allowance.
Michelle Holgate says: “It is often a consideration to hold high dividend-yielding investments in ISAs, as this way, dividends are not taxable. However, the appropriate underlying investment strategy and structure for anyone should be carefully considered by a professional to ensure the best use of tax allowances.”
4. Lifetime allowance will be removed
The pensions lifetime allowance (LTA) was abolished following the 2023 spring budget and will be fully removed from the tax year 2024/25 onwards. This means there’s no longer a limit on the amount of money you can build up in pensions over your lifetime without incurring a tax charge.
Previously, someone with more than £1,073,100 saved in pensions faced a tax charge on the excess when they came to draw their pension benefits.
Two new allowances are being introduced. The first is the pension ‘lump sum allowance’, which has been capped at £268,275. This is the amount of tax-free cash you can take from your pension and amounts to a quarter (25%) of the former £1,073,100 lifetime allowance.
The second is an individual ‘lump sum and death benefit’ allowance, set at £1,073,100 (available for those who don’t have any of the LTA protections). This is the cumulative total amount that can be paid out as tax-free lump sums during your lifetime and on your death.
5. ISA rules will simplify
From April 2024, you can open and pay into different ISAs of the same type in a single tax year; currently, this is limited to one of each type per tax year. For example, you could open two investment (Stocks and Shares) ISAs or two cash ISAs, allowing you to invest with different providers or to take advantage of better rates.
Your ISA allowance will remain at £20,000 in the 2024/25 tax year, on which you benefit from tax-free income and capital gains growth. The Junior ISA £9,000 limit also remains the same.
The value of investments, and any income from them, can fall and you may get back less than you invested. This does not constitute tax or legal advice. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Information is provided only as an example and is not a recommendation to pursue a particular strategy. RBC Brewin Dolphin is a trading name of Brewin Dolphin Limited. Brewin Dolphin Limited is authorised and regulated by the Financial Conduct Authority (Financial Services Register reference number 124444) and regulated in Jersey by the Financial Services Commission. Registered Office: 12 Smithfield Street, London, EC1A 9BD. Registered in England and Wales company number: 2135876. VAT number: GB 690 8994 69.
-ENDS-
PRESS INFORMATION
For further information, please contact:
Siân Robertson: Sian.Robertson@brewin.co.uk / Tel: +44 (0) 20 3201 3026
Payal Nair payal.nair@brewin.co.uk / Tel: +44 (0) 20 3201 3342
NOTES TO EDITORS
About RBC Brewin Dolphin
RBC Brewin Dolphin is one of the UK and Ireland’s leading wealth managers and traces its origins back to 1762. With £51.8* billion in assets under management, we offer award-winning, personalised wealth management services from bespoke, discretionary investment management to retirement planning and tax-efficient investing.
Our qualified investment managers and financial planners are based in 33 offices across the UK, Jersey and Republic of Ireland. They are committed to the most exacting standards of client service, with long-term thinking and absolute focus on our clients’ needs at the core.
As part of Royal Bank of Canada (RBC), we are now able to draw on the strength of a global financial institution to continue to improve the service we provide to our clients and drive further innovation across our business.
*as at 31st October 2023.
About RBC
Royal Bank of Canada is a global financial institution with a purpose-driven, principles-led approach to delivering leading performance. Our success comes from the 94,000+ employees who leverage their imaginations and insights to bring our vision, values and strategy to life so we can help our clients thrive and communities prosper. As Canada’s biggest bank and one of the largest in the world, based on market capitalization, we have a diversified business model with a focus on innovation and providing exceptional experiences to our more than 17 million clients in Canada, the U.S. and 27 other countries. Learn more at rbc.com.
We are proud to support a broad range of community initiatives through donations, community investments and employee volunteer activities. See how at rbc.com/community-social-impact.