Notable changes came into effect on 6 April, including the dividend allowance, employee National Insurance contributions (NICs), and the threshold for high-income child benefit starting at the beginning of the new tax year.
Tax adjustments
The dividend allowance decreased to £500 fromthe previous £1,000 on 6 April, which is expected to predominantly impact owner-managed businesses. This will generate an additional £455 million in tax for 2024/25 and affect approximately 4.4m taxpayers. This allowance had been reduced from £2,000 in April 2022.
The capital gains tax (CGT) exemption limit has been reduced by half to £3,000, down from £6,000, continuing a trend from two years ago when it was £12,300. Additionally, a new lower CGT rate of 24% for residential property sales was introduced for higher-rate taxpayers, compared to the standard 28% rate, while the regular 18% rate for others remains unchanged.
NICs reductions
Employee NICs have seen a further 2% reduction, bringing them down to 8%, marking the second cut since January. This reduction, combined with a previous 2% decrease announced in the 2023 Autumn Statement, is expected to save the average worker earning £35,400 more than £900 annually. Consequently, basic rate taxpayers will experience a total tax rate of 28%, down from 32% on 5 January.
Despite these changes, both basic and higher rate tax bands remain at £12,570 and £50,271 respectively, until 2028. This is anticipated to push more than a million taxpayers into the higher 40% tax bracket for the first time. The additional rate tax threshold of 45% remains at £125,140.
Family and pensions
The income threshold for the married couple's allowance has increased to £37,000, up from £34,600. The main rate for Class 4 NICs for the self-employed dropped from 9% to 6%, with the obligation to pay Class 2 NICs being removed. This could save the average self-employed individual earning £28,000 around £650 a year.
The threshold for the high-income child benefit charge (HICBC) has risen to £60,000 from £50,000. The charge is graduated for incomes between £60,000 and £80,000, making it potentially beneficial to claim in this range. A 1% charge on child benefit applies for every £200 of income over £60,000, equating to the child benefit amount if income surpasses £80,000. Those who previously opted out of child benefits due to the HICBC can now claim them through the HMRC app or website.
Child benefit rates have increased to £25.60 for the eldest child and £16.95 for additional children, resulting in an annual benefit of up to £1,331 for families with one child and £881 per additional child.
The state pension has also increased to £221.20 a week, or £11,502 annually, which approaches the basic tax rate threshold of £12,570.
Changes in working tax credit have seen the basic element rise to £2,435, and the couple and lone parent element increase to £2,500. Regarding private pensions, the new lump sum allowance is £268,275, with the lump sum and death benefit allowance set at £1,073,100, eliminating the lifetime allowance.
Lastly, the annual tax on enveloped dwellings (ATED) increased by 6.7% from 1 April 2024, in line with the September 2023 CPI, affecting properties across various value bands.
Talk to us about how these changes affect you.