Your UK tax year checklist – what's changing and what's not?

In a welcome move in his Spring budget, Chancellor Jeremy Hunt cut employee National Insurance Contributions for the second time this year. But with tax thresholds frozen, many people find themselves slipping into a higher tax band – and paying more tax.

Added to which, living standards (as measured by real household disposable income per person) are forecast to be 3.5% lower in 2024-25 per person than their pre-pandemic level. This represents the largest reduction in real living standards since ONS records began in the 1950s, according to the Office for Budget Responsibility.

With a General Election looking increasingly likely for November, economic performance and the continued cost of living squeeze are likely to be high on the agenda.

All of which means that using all available tax breaks while you have them will help your short and long-term financial security and wellbeing.

What’s changed about Income Tax and National Insurance?

The personal allowance – the amount of income you don’t have to pay tax on – remains at £12,570. In Scotland, there are numerous bands now, in an increasingly complex tax system.

The welcome news for those working is that the main rate of Employee National Insurance contributions (NICs) was reduced by a further 2% in the Spring budget – a ‘permanent change’ according to Jeremy Hunt. Most employees will now pay Class 1 National Insurance at 8% and self-employed earners will pay class 4 contributions of 6%.

Class 2 NICs have been abolished.

What’s changed about Dividend and savings income?

Through the Personal Savings Allowance, basic-rate taxpayers can continue to earn £1,000 interest on savings before paying tax in 2024/25. For higher-rate taxpayers, the allowance remains at £500, and for additional-rate taxpayers, it’s zero.

But there are significant changes to Dividend Tax. The dividend allowance drops by 50% to £500 for the 2024/25 tax year. If you own shares in a company, or receive dividends from funds or investment trusts, this is likely to affect you.

Because of the changes to Dividend Tax, you may want to talk over your options for making better use of the continuing tax allowances for pensions, which are more generous We’re always happy to review your plans and goals to help decide what’s right for you.

What’s changed about personal pensions?

This tax year, the big changes announced in 2023 to the lifetime allowance take effect. As of 6 April 2024, the Lifetime Allowance will no longer exist. There will be no limit on how much you accumulate in your pension.

So, largely good news if you're saving towards retirement or already accessing your pension pot.

The standard annual allowance for pension contributions – that is, the maximum total pension contribution you, your employer or third party, can make and receive the full benefits of tax relief in a year – remains at £60,000.

Tax relief on personal contributions is also limited to up to 100% of your relevant earnings in the tax year, or £3,600 if you earn less than this.

Read more:

Money HQ | How to give your whole family a financial head start this year

If you're saving towards your retirement, you now have the opportunity, if financially viable, to greatly increase the amount you can pay into your pension pot each year, whilst still taking advantage of the generous tax allowances associated with pensions.

There is a sting in the tail, however. The government has capped the pension tax-free lump sum at £268,275 – or 25% of your actual pension pot, whichever is lower. Which means that the most you can ever draw down, tax-free, from your pension is £268,275. After that, anything you take from your pension will be subject to Income Tax at your marginal rates.

This makes it even more important to save as much as you can afford in tax-efficient accounts such as ISAs, as well as pensions.

What’s changed about ISAs?

Your tax-efficient ISA allowance is still £20,000 for 2024/25, both Stocks & Shares ISAs and Cash ISAs. But a new ISA is proposed – the British or UK Stocks and Shares ISA. At the time of writing, this is in consultation until June 2024.

• Basic 8.75%
• Higher 33.75%
• Additional 39.35%

This ISA, designed to encourage investment in British companies, means that you can save an additional £5,000 per year tax-efficiently into the new ISA, on top of your existing £20,000 ISA allowance.

Although interest rates are still high, they are likely to remain below inflation for most of 2024. Inflation isn’t predicted to fall to 2% until early 2025 according to the OBR. This continues to erode the spending power of your savings in any Cash ISAs, or cash accounts since they cannot grow as fast as prices rise. Investing in Stocks and Shares ISAs still has more potential to achieve the best long-term results for ISA savers.

What about Junior ISAs?

The Junior ISA annual allowance also remains unchanged at £9,000. Alongside children’s pensions, Junior ISAs are a great way to give your children or grandchildren a financial head start. Since they can’t access the money until they’re 18, their savings have a greater chance to grow in the long-term, especially if you open a Junior Stocks and Shares ISA for them.

What’s changed about Inheritance Tax?

The short answer is, despite all the rumours around the Spring budget, nothing. The Inheritance Tax (IHT) nil-rate band for 2024/25 remains at £325,000, frozen until 2028. The additional Residence Nil Rate Band, (RNRB) where your main residence can pass to direct lineal descendants, also remains fixed at £175,000.

What’s changed about Capital Gains Tax?

The last two tax years have seen the tax-free allowance for Capital Gains Tax, or CGT reduce from £12,300 to £6,000.

The CGT allowance, which is the amount you can make before you start paying tax, drops to £3,000 from April 2024.

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There is a small positive note for people planning to sell a second home or buy-to-let property, however. The CGT allowance for disposing of a property asset that isn’t your main residence will reduce from 28% to 24% in the new tax year.

Finally, what’s changed about Corporation Tax?

No changes were proposed to the rates of The Corporation Tax which will continue to be 19% on profits up to £50,000, 25% for profits over £250,00 and an effective rate of 26.5% for profits that fall between those two thresholds for the 2024/25 tax year.

Ben Stark is a chartered financial planner with over a decade of experience advising businesses and families. He is partnered with St. James's Place Wealth Management.