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By Wesleyan

New tax year: Key changes for 2024/25

financial planning
5 min
Young female sitting at desk in home kitchen with open laptop looking at paperwork

On 6th March 2024, the Chancellor of the Exchequer announced a number of changes as part of his Spring Budget, with key areas including National Insurance, ISAs and Child Benefit.

A number of tax rate changes also came into effect from 6th April 2024, specifically in relation to Capital Gains Tax and the UK Dividend Allowance.

Here we’ll delve into these changes in more detail – and what you might need to know as we enter the new financial year.

National Insurance Contributions (NICs)

Perhaps the most unsurprising announcement from the Budget was a 2% cut to ‘Class 1’ National Insurance Contributions (NICs). When it comes to NI, the class you fall into depends on your employment status and how much you earn. ‘Class 1’ relates to employed people, with contributions payable by both you and your employer.

This cut, which came into effect from 6th April 2024, will see NI contributions fall from 10% to 8% on earnings from £12,570 to £50,270.

It’s worth noting that this reduction is happening in addition to cuts that were announced as part of the 2023 Autumn Statement, which included a 2% cut for Class 1 NICs and a 1% cut for Class 4 NICs.

The government is also set to launch a consultation later this year to deliver its plan to abolish Class 2 National Insurance. This follows the announcement at the 2023 Autumn Statement that from April 2024, no self-employed person will be required to pay Class 2 NI.

However, if you’re self-employed and wish to continue paying voluntarily as a way to build your entitlement to contributory benefits, you will still be able to do so.

Individual Savings Accounts (ISAs)

The Chancellor also announced the launch of a new ‘British ISA’ – a tax-free account for those looking to invest in UK-focussed assets. This ISA is set to provide an extra £5,000 tax-free allowance for UK investments, on top of the existing £20,000 ISA allowance.

Quite how this will work remains unclear. However, the introduction of the UK ISA follows a relaxation of ISA rules that came into effect from 6th April 2024, meaning investors can now open more than one of each type of ISA per tax year (except the Lifetime ISA).

It’s also important to note that the age limit for the adult cash ISA has changed to 18+. The minimum age for opening an account was previously 16.

The 18+ rule came into effect from 6th April 2024. However, 16 and 17 year olds will still be able to open and save into a Junior ISA (offering a yearly allowance of £9,000) until they turn 18. At this point, the £20,000 ISA allowance will apply.

The UK Dividend Allowance

It’s also worth noting here that from 6th April 2024, the tax-free dividend allowance in the UK was reduced from £1,000 to £500. This reduction in the dividend allowance could lead to higher tax payments for some individuals, as more of your dividend income will be subject to tax.

Find out more about tax rates on dividend income for 2024/25 and how they may affect your finances in our guide.

Keep in mind that the value of your investment can go down as well as up, so you could get back less than you invested.

High Income Child Benefit Charge

One of the key areas of focus during the Budget was the High Income Child Benefit Charge. The charge threshold has now changed from £50,000 to £60,000, and there will also be a tapered charge between £60,000 and £80,000.

Under the old rules, when one parent was paid more than £50,000, their Child Benefit was gradually withdrawn and removed altogether once their earnings topped £60,000.

This created a situation where families with two parents earning £49,000 each (so a combined household income of £98,000) would still receive Child Benefit, but families with one parent earning £60,000 (and the other not working) wouldn’t receive anything.

The government is also set to consult on moving to a system based on household income rather than individual incomes – but not until April 2026.

Capital Gains Tax (CGT)

As well as the changes already covered in this article, the government has also announced a reduction in the threshold for Capital Gains Tax (CGT). Last year (2023/24), the CGT allowance was £6,000, but it has been cut to £3,000 for this tax year (2024/25).

This means that if you make more than £3,000 in gains on certain assets that you sell or give away, you might have to pay capital gains tax - for example, on a property that's not your main home or certain business assets.

The government has also announced a reduction in the higher rate of Capital Gains Tax (CGT) due on sales of residential property. Effective from 6th April 2024, the rate decreased from 28% to 24%, while the lower rate remains at 18%.

This adjustment aims to give the property market a helping hand by increasing the amount of homes available for buyers looking to get onto the property ladder. It is also intended to support the many jobs that rely on the market.

What’s more, starting April 2025, CGT for owners of furnished holiday let properties will be phased out in an effort to address housing shortages.

To learn more about Capital Gains Tax (CGT) and how it might impact your finances, read our guide to tax rates for 2024/25.

Tax treatment depends on the individual circumstances of each client and may be subject to change in future.

What happens next?

Beginning a new financial year and navigating some of these complex changes can be overwhelming, which is why it’s important to get the advice you need to make the right decisions for you and your family.

Get in touch with a Specialist Financial Adviser from Wesleyan Financial Services today to see how we can help.

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