In an election year especially there are always tax changes – cuts to make you feel good about the government, and sneaky rises to pay for them. This years sees a new series of ‘adjustments’, some offering relief, others posing new considerations. If you’re unsure how these changes might impact you, settle in, and we’ll talk you through it
Cuts to National Insurance Contributions
Starting January 6th, 2024, the main rate of Class 1 National Insurance contributions (NICs) for employees dropped from 12% to 10% and, post budget, will drop to 8%. This translates to a tax cut for an estimated 27 million individuals, with the average worker earning £35,400 seeing a boost of over £450 in their pockets. Self-employed individuals also saw a positive change, with those earning above £12,570 being exempt from Class 2 NICs starting on April 6th.
A freeze on the tax thresholds
While the NICs cuts offer some welcome relief, it’s crucial to remember the bigger picture. This decrease was accompanied by a freeze on personal tax thresholds and allowances, including the income tax personal allowance and Capital Gains Tax (CGT) allowance. This freeze, initially projected to be temporary, is now expected to continue until 2027-28.
What does this mean? Essentially, while your NICs contribution might be lower, you’ll likely pay more income tax and CGT as your income creeps up towards the frozen thresholds due to inflation. So, while there’s a short-term benefit, the full effect on your tax bill depends on your income level.
Other Key Changes to Take Note:
- Dividend Tax Allowance Halved: It’s not great news for investors – the dividend tax-free allowance dropped from £1,000 to £500 starting on April 6th. This means you’ll pay tax on any dividends you receive above this new limit.
- Capital Gains Tax Allowance Reduction: In another blow to investors, the CGT allowance was halved from £6,000 to £3,000, effective April 6th. This means you’ll pay CGT on more of your capital gains, impacting property sales, share disposals, and other asset sales.
- Pension Lifetime Allowance Scrapped: Starting April 6th, the £1 million cap on how much you could save in a pension before incurring tax charges was abolished. While this offers flexibility for high earners, it’s crucial to seek professional advice to navigate the complexities and potential tax implications.
- Business Rates Changes in England: For businesses in England, some positive news: the small business multiplier rate freeze and 75% Retail, Hospitality and Leisure relief were extended for another year, offering some relief from rising costs. However, the standard multiplier still increased in line with inflation. If this means nothing to you, it might not be relevant. If there’s vague alarm bells in your head, then give is a call.
The combination of all these changes will be different for everyone so it’s important to get advice to understand how these changes affect your specific situation and ensure you’re complying with all regulations.
