Happy New Tax Year! Important changes that may affect you

Like many headlines, they are quickly forgotten, becoming the next day’s fish and chips wrappers!

I can almost guarantee that this phrase will apply to Chancellor Jeremy Hunt’s March Budget? Let me remind you of the key points, as they could really affect you:

Read on, or click here to watch Joanne’s video

Capital Gains Tax (CGT):

The CGT allowance for the 2023/24 tax year was halved from £12,300 to £6,000, but from 6th April 2024, the CGT allowance is now reduced to just £3,000! As a result, more investors are likely to be affected by CGT, especially those with substantial gains.

 How do you mitigate the impact?

Use your CGT allowance: Regularly use your annual exempt amount (AEA) by selling assets up to the allowance. Consider reinvesting the proceeds into other investments.

Spread Gains Over Years: If time permits, spread gains over multiple tax years to reduce the immediate tax impact.

Use your Individual Savings Accounts (ISAs):

Unlike general investment accounts (GIAs), ISAs offer significant tax benefits, including:

Exemption from CGT: Profits made within an ISA are exempt from CGT.

With the reduced CGT allowance in GIAs, ISAs become even more attractive for tax-efficient investing.

Consider maximising your ISA contributions to shield gains from CGT and enjoy tax-free growth.

If you transfer from a GIA to an ISA annually, please be aware that this could now mean you create a gain which causes you a tax liability. While this may be unavoidable, make sure you declare it on your tax return. If this is the only bill you would owe, then I suggest you open a government gateway account and register online. There is a simplified form just for reporting your Capital Gains – SA108.

Remember though, using HMRC’s online service is the preferred method for reporting and paying Capital Gains Tax.

Also, you might not know that a loss could also be achieved, and providing you register the loss with HMRC, it can be carried over and used in the future.

Tax Planning Point:

Utilising capital losses in this way is an important tax planning strategy. If you have a net loss, it is carried forward until relief can be given in subsequent years. However, if you don’t register the loss, you cannot claim any relief in later years.

Pension Lifetime Allowance (LTA) abolition:

Background:

The LTA was introduced in 2006 as a mechanism to limit tax-favoured pension savings in registered pension schemes.

It represented the maximum amount of tax-relievable pension savings an individual could accumulate over their lifetime.

Initially set at £1.5 million, the LTA has undergone changes over the years, with the most recent level being £1,073,100.

Recent Developments:

As part of the Spring Budget 2023, the UK government announced its commitment to abolish the LTA.

The Finance (No.2) Act removed the LTA charge and implemented some changes to facilitate the removal of this charge.

From April 6, 2024, the LTA will be fully abolished from pension tax legislation.

What Does This Mean?:

As of 6th April 2024, there is no lifetime allowance in pension tax legislation.

Individuals can receive a maximum of £268,275 in tax-free cash unless they hold valid lifetime allowance or lump sum protection.

In summary, the LTA is out, and these changes provide more flexibility for pension savers. Remember to seek professional advice tailored to you to ensure you plan correctly in this area.

The British ISA:

The proposed British ISA aims to encourage investment in UK companies by providing an additional savings opportunity. Here are the key details:

Allowance: An extra £5,000 allowance on top of the existing £20,000 annual ISA allowance.

Purpose: To invest in UK shares and support UK businesses.

Consultation Period: The consultation runs from 6 March 2024 to 6 June 2024.

This new tax-free savings option will empower individuals to contribute to the UK economy while enjoying the benefits of tax-free investment. If implemented, it could be a valuable addition to the existing ISA landscape.

For more detailed information, you can refer to the official consultation paper. Keep an eye out for updates as the proposal progresses, as full details on the logistics of this proposal have not yet been finalised.

Changes to Holiday Let rules:

Let’s break down what these changes mean:

Abolishing the Furnished Holiday Let (FHL) Tax Regime:

The FHL regime, which allowed landlords and second homeowners to benefit from full mortgage interest relief and lower capital gains tax (CGT), has been scrapped.

From April 2025, the FHL tax perks will no longer be available.

This move is aimed at addressing the distortion caused by FHLs, which reduced the availability of long-term rental properties for local residents.

Multiple Dwellings Relief (MDR):

MDR, which lowered the stamp duty bill when purchasing more than one dwelling in a linked transaction will also be abolished in June 2024.

This change is expected to raise £385 million per year.

 Capital Gains Tax (CGT):

The higher rate of CGT on property sales has been reduced from 28% to 24% starting this April.

While FHL owners will lose some tax perks, this reduction in CGT aims to encourage landlords and second homeowners to sell their properties.

Impact on the Property Market:

FHLs were becoming an attractive alternative to traditional buy-to-let investments.

Previously, FHL owners could claim full mortgage interest relief, capital allowances for furniture, and benefit from a reduced CGT rate (10%) upon property sale.

By abolishing FHL tax perks, the playing field between short-term and long-term lets will be levelled, potentially increasing the availability of properties for local residents.

In summary, while FHL owners face changes, the reduction in CGT rates may provide some relief. However, it remains essential for property investors to adapt their strategies in light of these changes.

 National Insurance (NI) Contributions:

Starting in April there will be reductions in National Insurance contributions in the United Kingdom; the key changes are:

Primary Class 1 National Insurance Contributions:

The main rate of primary Class 1 National Insurance contributions will be reduced by 2 percentage points, going from 10% to 8%. This change applies to earnings between £12,570 and £50,270 per year.

Class 4 National Insurance Contributions (for self-employed individuals):

The main rate of Class 4 National Insurance contributions will also be cut by 2 percentage points, decreasing from 8% to 6%. This reduction is more significant than initially planned.

 Class 2 National Insurance Contributions (for self-employed individuals):

From 6 April 2024, the Class 2 flat rate of National Insurance will be abolished completely!

These adjustments aim to provide relief for workers and self-employed individuals, allowing them to keep more of their earnings. If you fall within the specified income range, you’ll benefit from these changes starting in April 2024.

Child Benefit:

The Chancellor has raised the income threshold for the High Income Child Benefit Charge (HICBC). Previously, you would start losing child benefit if one parent earned more than £50,000. Now, this threshold has been increased to £60,000. Additionally, child benefit won’t be entirely taken away until an individual earns £80,000, compared to the previous limit of £60,000.

The content of this blog is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions.

Levels, bases of and reliefs from taxation may be subject to change.

The Financial Conduct Authority does not regulate taxation and trust advice. Active Chartered Financial Planners recommends you speak to a Tax Adviser/Accountant for this; Active would be happy to introduce you to one of our close partners.

Contact us today by phone 01642 765957 OR email info@activefp.co.uk

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