5 tax and savings changes coming this April, and how they may affect you

This 6 April 2024 – at the start of the new tax year – the government is making several changes to how certain taxes and ISAs work.

As a result, the amount you pay in Dividend Tax, Capital Gains Tax (CGT), National Insurance (NI) and any pension Lifetime Allowance charges may all change. Additionally, changing ISA rules could allow you to invest more flexibly.

Read on to learn about five changes to tax and savings happening on 6 April 2024, and how they may affect you. If you want to discuss any of the matters raised in this article with me, please do get in touch.

1. National Insurance for self-employed people is changing

If you are self-employed, you may pay less National Insurance contributions (NICs) in the 2024/25 tax year.

That’s because the class 4 rate for the self-employed will fall from 9% to 8% from 6 April 2024.

Additionally, self-employed people will no longer have to pay class 2 contributions.

At present, class 2 contributions help you to accumulate eligibility for certain benefits such as the State Pension. After the abolition of class 2 contributions, self-employed workers will continue to get access to these benefits even though there will be no class 2 NICs to pay.

If you are employed, you will probably have already benefited from a reduction in your NICs this year. These changes in self-employed NICs come following a cut in the National Insurance rate for employees from 12% to 10% that came into effect on 6 January 2024.

2. The government is abolishing the pension Lifetime Allowance

The Lifetime Allowance (LTA) is the amount of money you can build up in your pension without incurring an additional tax charge when you come to withdraw the funds.

At present most people have a Lifetime Allowance (LTA) of £1,073,100 for pension savings (unless you have previously applied for LTA protection).

The government are abolishing the LTA at the start of the 2024/25 tax year, although it is worth noting that the chancellor previously removed the tax charge in April 2023.

If you are nearing or have reached the LTA, this could mean you reconsider how you contribute to your pension.

• If you have stopped making pension contributions due to reaching the LTA, you may want to resume them.
• If you have retired, you may consider returning to work in order to contribute more to your pension and to benefit from tax relief and employer contributions.
• Because your pension normally falls outside of your estate for Inheritance Tax (IHT) purposes, you may consider continuing to contribute to your pension to reduce the IHT burden on your loved ones when you die.

Whether any of these options are right for you depends on your personal circumstances. Please get in touch with me if you have any questions regarding how the upcoming change to LTA may affect you.

3. The Dividend Allowance will be halved

In the 2022 Autumn Statement, the chancellor of the Exchequer, Jeremy Hunt, announced that he would be cutting the Dividend Allowance over the two subsequent tax years.

The Dividend Allowance is the amount you can earn from dividends in a tax year without paying tax. You also don’t pay tax on dividend income that falls within your Personal Allowance (£12,570 in the 2024/25 tax year).

If you're a business owner, your personal drawings from the business may include some dividends, or you may benefit from dividend-paying investments.

At the start of the 2023/2024 tax year, the Dividend Allowance was reduced from £2,000 to £1,000. On 6 April 2024, it will reduce again – this time to £500.

If you receive dividends as a business owner, or from investments you hold, you could pay more tax in the 2024/25 tax year.

The amount of tax you pay on dividends varies depending on your Income Tax band:

• 8.75% for basic-rate taxpayers 
• 33.75% for higher-rate taxpayers 
• 39.35% for additional-rate taxpayers.

If you are a business owner, you may want to reconsider how you receive income from your business in light of this change. Similarly, if you hold investments which pay dividends, you might want to consider moving these investments into a tax-efficient wrapper such as an ISA.

4. The government is also halving the Capital Gains Tax Annual Exempt Amount

In the same statement in which he announced the government’s planned cut of the Dividend Allowance, the chancellor also announced a similar planned reduction in the CGT Annual Exempt Amount (AEA).

The AEA is the amount you can earn in profits through the disposal of assets (such as second properties, non-ISA investments, or personal possessions such as expensive art or jewellery) in a year without paying CGT.

At the start of the 2023/24 tax year, the government cut the AEA from £12,300 to £6,000 for individuals, and from £6,150 to £3,000 for most trustees.

On 6 April 2024, it will halve the AEA from £6,000 to £3,000 for individuals, and from £3,000 to £1,500 for most trustees.

This could mean that you pay more tax on profits you make from the sale of assets in future tax years. As a result, you may want to adjust your investment strategy.

Again, one important consideration could be making the most of tax-efficient wrappers such as ISAs.

5. ISA rules are changing

From 6 April 2024, the government is changing some rules around ISAs. Most notably, you will now be able to pay into multiple ISAs of the same type in the same tax year.

The different types of adult ISA are:

• Cash ISA
• Stocks and Shares ISA
• Lifetime ISA
• Innovative Finance ISA.

Possible benefits of this change to you include:

• Being able to open and pay into a new Cash ISA if better rates become available without having to wait until the start of the next tax year.
• Paying into multiple Stocks and Shares ISAs with different providers to make the most of different exposures and differences in fees.

Additionally, the minimum age for Cash ISAs is being raised to 18. Junior ISAs will remain available for those under 18.

Get in touch

If you have any questions or concerns about how these upcoming changes may affect your financial plan, please get in touch by emailing info@macfp.co.uk or calling 01349 832849.

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 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.