Personal Tax Changes from 6 April 2024

Amy Stubbins, Streets Whittles Personal Tax Manager who oversees the running of our personal tax department, gives a brief summary of what has just changed in terms of personal tax charges.

As we usher in the new tax year, several significant changes are set to impact individuals’ finances. Here we break down the key changes:

Dividend Allowance Slashed

The dividend allowance will be halved to £500 from the current £1,000. This change, while intended to generate an additional £455 million in tax revenue for 2024-25, is expected to affect approximately 4.4 million taxpayers. This reduction marks a significant decrease from the £2,000 allowance in April 2022, particularly impacting owner-managed businesses.

Capital Gains Tax Adjustments

The annual exempt allowance for capital gains tax (CGT) will also be halved to £3,000 from the current £6,000, down from £12,300 just two years ago. Additionally, there will be a new reduced CGT rate of 24% for residential property sales for higher-rate taxpayers, down from 28%, while the basic rate remains unchanged at 18%.

Employee National Insurance Contributions Reduced

Employee national insurance contributions (NICs) will see a further 2% reduction to 8%, following a prior 2% cut announced in the Autumn Statement 2023. This reduction is estimated to save the average worker on £35,400 over £900 annually, resulting in a reduced tax rate of 28% for basic rate taxpayers compared to the previous 32% as of 5 January.

Threshold Freezes and Adjustments

The basic rate and higher rate tax thresholds will remain frozen until 2028 at £12,570 and £50,271, respectively. This freeze may pull more taxpayers into higher-rate tax brackets, with over a million expected to face 40% tax charges for the first time. The additional tax 45% threshold remains unchanged at £125,140. Additionally, the income limit for married couples’ allowance increases to £37,000 from the current £34,600.

Changes for Self-Employed Individuals

For self-employed individuals, the main rate of Class 4 NICs is being reduced from 9% to 6%, alongside the abolition of the requirement to pay Class 2 NICs. These changes aim to simplify the tax system and save an average self-employed person on £28,000 over £650 annually.

High Income Child Benefit Charge (HICBC) Increase

The high income child benefit charge (HICBC) will rise to £60,000 from the current £50,000. However, the charge is tapered, meaning it may still be beneficial for parents or their partners earning between £60,000 and £80,000 to claim child benefits. The charge increases by 1% for every £200 of income exceeding £60,000 and equals the amount of the child benefit payment if income exceeds £80,000.

Other Adjustments

Other changes include an increase in child benefit rates, with the eldest child receiving £25.60, up from £24, and other children receiving £16.95, up from £15.90. Additionally, the state pension will increase to £221.20 a week from £203.85, and working tax credit elements will also see adjustments.

Pension and Property Taxes

On private pensions, the new lump sum allowance will be £268,275, while the lump sum and death benefit allowance will be £1,073,100, with the lifetime allowance being eliminated. The annual tax on enveloped dwelling (ATED) charges will also rise by 6.7% from April 1, 2024, in line with CPI adjustments.

These changes support the ever-changing tax landscape and the need for individuals and businesses alike to keep up to date. If you would like to discuss any of the changes outlined, or your tax affairs in general, please get in touch