The start of the new tax year on 6 April 2024 is an important date for your financial calendar. Several allowances and exemptions reset, including your ISA allowance, Dividend Allowance, and Capital Gains Tax (CGT) Annual Exempt Amount.
Now may be a good time to start utilising these allowances and exemptions to make more tax-efficient contributions to your savings and investments.
However, the start of a new tax year also brought some crucial changes that could affect your financial plan.
Read on to learn about five important changes that came into force in April 2024 and how they could affect your finances.
1. The Dividend Allowance fell to £500
Dividends are the profits of a company, paid to shareholders. Dividends from your investments could provide a regular income or you might choose to reinvest them and purchase more shares. You may also draw dividends from your own business.
Yet, you may need to consider the tax that you pay on this income.
You typically pay tax on any dividends from your business or non-ISA investments if they exceed your Personal Allowance – £12,570 in the 2024/25 tax year – and your “Dividend Allowance”.
The rate that you pay depends on your marginal rate of Income Tax. You could pay:
- 8.75% if you’re a basic-rate taxpayer
- 33.75% if you’re a higher-rate taxpayer
- 39.35% if you’re an additional-rate taxpayer.
In 2023/24, the Dividend Allowance stood at £1,000 but on 6 April 2024, it halved to £500.
Consequently, you may pay more tax on dividends in the future. It’s important to consider this as you may wish to explore ways to potentially mitigate a large tax bill. For instance, you won’t pay tax on dividends from investments held in a Stocks and Shares ISA.
2. The Capital Gains Tax Annual Exempt Amount fell to £3,000
CGT is a tax on gains made from selling or otherwise disposing of a “chargeable asset”. These include:
- Non-ISA investments
- A property that isn’t your main home
- Personal possessions worth more than £6,000 (apart from your car)
- Business assets.
Fortunately, you have a CGT “Annual Exempt Amount” – the gains you can make from selling assets before triggering a tax charge – to use each tax year.
You typically pay CGT on any gains that exceed your Annual Exempt Amount. The rate of tax depends on your marginal rate of Income Tax. You could pay:
- 10% if you’re a basic-rate taxpayer (18% for a residential property)
- 20% if you’re a higher- or additional-rate taxpayer (24% for residential property).
In 2023/24, the Annual Exempt Amount was £6,000. If you purchased some shares (not in an ISA) for £10,000 and then later sold them for £20,000, you would have made a gain of £10,000.
Once the Annual Exempt Amount of £6,000 was applied, you could pay CGT on the remaining £4,000. This means a higher-rate taxpayer would have paid £800 in CGT.
However, the Annual Exempt Amount halved to £3,000 on 6 April 2024.
Using the same example as above, you would now pay CGT on £7,000, meaning that a higher-rate taxpayer would pay £1,400 in tax.
As a result, you may need to consider how and when you sell assets and try to remain within your Annual Exempt Amount each year.
You may also be able to transfer assets to your spouse or civil partner and use both your Annual Exempt Amounts. You don’t normally pay CGT when selling investments held in an ISA either.
It could be worth seeking professional advice to explore the most tax-efficient ways to dispose of assets.
3. A second National Insurance cut came into effect
Some of the changes on 6 April 2024 could mean that you pay more tax in the future. However, it’s not all bad news as a second National Insurance (NI) cut came into effect.
Class 1 NI contributions (NICs) for employed people fell by 2% so if you earn more than £242 a week, you may notice an increase in your income.
According to the Guardian, somebody earning £50,000 a year will be £748.60 a year better off as a result of the most recent cut, and the previous cut introduced in January 2024, combined.
Additionally, Class 2 NICs for self-employed people fell by 3% on 6 April 2024. This could mean a saving of £650 for somebody earning £28,000 a year.
You might want to think about the most sensible ways to use these extra funds to support your financial plan.
4. The Lifetime Allowance was officially abolished
The Lifetime Allowance (LTA) was the total amount you could contribute to your pension before triggering a tax charge.
In his 2023 Spring Budget, chancellor Jeremy Hunt announced that the LTA charge would be frozen from 6 April 2023, and the LTA would be abolished altogether at a later date.
On 6 April 2024, the LTA was officially abolished, so you may be able to make more tax-efficient contributions to your pension in the future.
Note that three new allowances have replaced the LTA. They are the:
- Lump Sum Allowance (LSA)
- Lump Sum and Death Benefits Allowance (LSDBA)
- Overseas Transfer Allowance (OTA).
For example, the LSA limits the tax-free lump sum you can take from your pension, irrespective of the total value of the fund.
It may be useful to seek advice to ensure you understand how these new allowances work, so you can be as tax-efficient as possible when accessing your pensions.
5. Several important ISA rules changed
ISAs are an excellent tax-efficient saving and investing tool, and you may rely on them more in the future after changes to the Dividend Allowance and the CGT Annual Exempt Amount.
Fortunately, new rules that came into force at the start of the tax year could make it easier than ever to benefit from ISAs.
Previously, you could only open and contribute to one of each type of ISA in a given tax year. For example, you could have a Cash ISA and a Stocks and Shares ISA, but you couldn’t have two Cash ISAs with different providers.
From 6 April 2024, you are free to open and contribute to as many different ISAs as you like each tax year. This means you could hold some of your wealth in an easy access Cash ISA as an emergency fund and hold some in a fixed-term Cash ISA to secure a better interest rate.
You could also open several Stocks and Shares ISAs to benefit from the different investment products offered by each provider.
The rules about transferring funds between ISAs also changed on 6 April 2024.
Prior to the start of this tax year, you had to transfer the entire contents of an ISA when moving from one provider to another. Now, you can make partial transfers, giving you more freedom to move funds between different ISAs.
Finally, Stocks and Shares ISAs can now offer some “fractional shares”, allowing you to buy a portion of a share instead of a full one. This may help you diversify your portfolio as you could invest in a wider range of companies without increasing the amount you contribute.
These changes to ISA rules could benefit you as you have more flexibility over how you use the tax wrapper.
Get in touch
If you are unsure about how any of these changes might affect you, we can give you guidance.
Email enquiries@blackswanfp.co.uk or contact your adviser on 020 3828 8100.
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.
The Financial Conduct Authority does not regulate tax planning.
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.
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