Staying abreast of changes to tax rules in the UK can help you manage your wealth and remain on target towards achieving your long-term goals.
However, considering the Taxpayers’ Alliance revealed Conservative or Conservative-led governments implemented at least 1,651 tax changes between 2010 and 2021, this can be easier said than done.
In fact, if the American statesman and polymath, Benjamin Franklin, once remarked that “in this world nothing can be said to be certain, except death and taxes”, perhaps you should add “having to frequently wrap your head around new tax legislation” to that list of life’s inevitabilities.
As the government altered various key tax rules at the start of the new financial year on 6 April 2024, now may be an ideal time to ensure you understand what changed.
Continue reading to discover three new tax rules introduced in 2024/25 that could affect your financial plan.
1. The Capital Gains Tax Annual Exempt Amount fell to £3,000 on 6 April 2024
Capital Gains Tax (CGT) is a tax you may be liable for if you make profits when you sell certain assets that have increased in value over time. These assets could include:
- Non-ISA investments
- Second properties
- Any personal possessions worth more than £6,000, excluding your car
- Business assets.
Each tax year, you can earn a certain amount in profits from the sale of these assets before you trigger CGT. This is called the “Annual Exempt Amount” and, in 2024/25, the government has reduced the CGT Annual Exempt Amount from £6,000 to £3,000.
This change means you can now only make £3,000 in gains before CGT is due. As recently as 2022/23, the Annual Exempt Amount was £12,300, so careful planning will be more important than ever.
When you exceed this threshold, you’ll typically pay CGT on gains based on your marginal rate of Income Tax.
This means you could pay:
- 10% for basic-rate taxpayers (or 18% for a residential property)
- 20% for higher- or additional-rate taxpayers (or 24% for a residential property).
As an example, if you made an investment outside your ISA for £10,000 a decade ago and sold it for £20,000 in 2024/25, £7,000 of your gains would exceed the Annual Exempt Amount, you would pay £1,400 in CGT if you were a higher-rate taxpayer (assuming you make no other gains in the same tax year).
This change means it’s essential to carefully think about how and when you should sell your assets to make the best use of the reduced Annual Exempt Amount.
For instance, you could crystallise gains over several tax years and make gains up to the Annual Exempt Amount each year. This could help you to maximise your tax-efficient gains when compared to encashing an investment in one go.
Alternatively, you could pass your assets to your spouse or civil partner CGT-free. You can then make use of two individual exemptions and potentially pay less CGT.
Or, you could simply make the most of ISA investments. Since any returns and profits you make through investing in an ISA aren’t liable for CGT, a Stocks and Shares ISA could be an effective way to make profits without a CGT liability.
2. The Dividend Allowance fell to £500 on 6 April 2024
Dividends are a fantastic way for you to passively earn an income from your investments as a company shareholder. Or, if you own a business, you may take dividends as part of your remuneration.
This could be an effective method of supplementing your income, but it’s important to remember that you may pay tax on these dividends.
Like most forms of tax in the UK, you are given an earning threshold before you trigger Dividend Tax.
In 2023/24, the Dividend Allowance stood at £1,000, meaning you could earn this amount in dividends before tax was due. In 2024/25, however, the government has halved this allowance to £500.
If you do exceed the Dividend Allowance, the rate of tax you face is based on your Income Tax band, meaning you could pay:
- 8.75% for basic-rate taxpayers
- 33.75% for higher-rate taxpayers
- 39.35% for additional-rate taxpayers.
If you’re suddenly liable for Dividend Tax when you haven’t been before, it may also mean that you must complete a self-assessment tax return for the first time.
Investing through a Stocks and Shares ISA can be a prudent way to avoid Dividend Tax, as any dividends you earn are free from Dividend Tax.
3. A new National Insurance cut came into effect
While many of the changes introduced this tax year could result in a higher tax bill, the new National Insurance (NI) cut is one particular change that could increase your earnings.
Class 1 NI contributions (NICs) for employed people fell by 2% on 6 April – in addition to a further 2% cut in January 2024 – meaning that if you earn more than £242 each week, your income may rise.
In fact, the Guardian reveals that someone earning £50,000 a year could be £748.60 better off each year due to these two NI cuts.
On top of this, Class 2 NICs for the self-employed were completely abolished, while the rate for Class 4 NICs fell from 9% to 6%. This means that a self-employed person earning £28,000 a year could potentially save £650.
Ultimately, these cuts could increase your take-home pay, and you could use this extra wealth to bolster your retirement fund or save towards your financial goals.
Get in touch
If you’re still unsure how the new tax changes could affect your wealth, we can help you fully understand any changes to legislation.
Please contact us at hello@ardentuk.com or call 01904 655 330. As an award-winning financial advice company with advisers included in the 2024 VouchedFor Top Rated guide, you can be sure that we’re a bona fide company providing excellent advice and high-quality service.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
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.
