Five tax changes you need to know about from April 2024

The new 2024/25 tax year brings with it several significant changes that could have an impact on your finances.

Here’s a summary of the main tax changes you need to know about. 

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, Divisional Director of Financial Planning 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.

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.

Next steps

Making the most of your tax allowances can be complex, and that’s where getting financial planning advice could help. A financial adviser can help you make best use of your tax reliefs and allowances, and structure your portfolio tax efficiently. That way, you’ll feel more confident that you’re making the most of your money.

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.