Personal Finance Changes from the 6^th April 2024

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The commencement of a new tax year frequently introduces a series of modifications that affect individuals income, investments and savings – and this year is no exception. Below, we outline significant changes impacting people’s finances in this new tax-year. 
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1. Capital Gains Tax Breaks Cut Again

The tax-free allowance for capital gains tax (CGT) will undergo a significant reduction, slashed in half from the current £6,000 to just £3,000. This adjustment implies that the tax-free threshold will now be less than a quarter of what it stood at just over a year ago. Consequently, individuals holding onto gains can expect larger tax liabilities as a result. 

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2. CGT Rates Cut For Higher Earners With Second Properties

The top rate of capital gains tax will see a reduction. Typically, capital gains tax rates stand at 10% and 20%. However, there exists a higher rate for individuals selling a second property, set at 18% for basic-rate taxpayers and 28% for those in the higher-rate bracket. In the Spring Budget announcement, it was revealed that the highest rate of 28% will be reduced to 24% as of April 6th this year. The lower rate of 18% will remain unchanged.

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3. Dividend Tax-Free Allowance Also Cut

The tax-free dividend allowance will undergo a halving, decreasing from £1,000 to £500. This adjustment implies that starting in April, an additional rate taxpayer with dividends exceeding £1,000 will incur an additional tax of £197 annually compared to the current tax year. To mitigate your dividend tax liability, transferring your funds into an ISA or pension represents the most effective strategy. Alternatively, you can transfer assets to your spouse to leverage their tax-free and ISA allowances.

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4. The Lifetime Allowance is Abolished – For Real

We bid farewell to the pension lifetime allowance, currently capped at £1,073,100. Instead, two new primary allowances will be introduced: the lump sum allowance and the lump sum and death benefit allowance, alongside a third allowance pertaining to overseas transfers. The lump sum allowance, defining the tax-free lump sum limit individuals can withdraw from their pension, will be fixed at £268,275. Additionally, the lump sum and death benefit allowance will be established at £1,073,100. These allocations are devised to restrict the tax-free lump sums individuals can access throughout their lives and bequeath to beneficiaries upon their demise.

This comes with additional complexities and any fixed or individual protection you have is still relevant, allowing higher tax-free cash.

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5. Child Benefit Extends to More Families

There will be alterations to the regulations concerning child benefit. The government has implemented two significant adjustments: firstly, the threshold at which you begin to lose child benefit payments will rise from £50,000 to £60,000. Secondly, you will still receive some child benefit until you earn £80,000, compared to the previous threshold of £60,000. The entitlement to the benefit is determined based on the individual income of the parents, implying that if either parent earns more than the thresholds, entitlement to the benefit will be forfeited.

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6. Free Childcare Hours are Extended but be Quick to Claim

Beginning in April, the provision of free childcare hours will be extended to include two-year-olds, rendering them eligible for 15 free hours per week at nurseries or with childminders. However, a significant limitation is that the deadline to secure the funding is March 31st. Missing this deadline means you won't be able to claim until September. To qualify, both parents must be employed, and their combined annual income must be below £100,000.

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7. National Insurance is cut again

The starter rate for National Insurance, applicable to employed individuals on earnings between £12,570 and £50,270, will see a reduction from the current 10% to 8%. This reduction follows a previous drop from 12% at the end of the previous year. Your payroll department is responsible for implementing this change on your behalf. Similarly, self-employed individuals will experience a two-percentage-point reduction, with the Class 4 National Insurance rate dropping from 8% to 6% starting in April, after having been slated for a decrease from 9%. Additionally, the government has announced the abolition of Class 2 contributions, effective from April of this year.

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8. National Minimum Wage Increasing

The minimum wage in the UK will undergo a substantial increase, providing a significant boost to the earnings of the lowest-paid workers. The minimum wage for individuals aged 21 and over will rise by over £1 per hour, reaching £11.44. This increase translates to a pay rise of £1,856 per year for someone working full-time on the minimum wage, bringing their annual salary to £20,820 (based on a 35-hour week).

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9. State Pension Increases to £11,500 a year

Starting in April, retirees will enjoy an inflation-busting 8.5% raise in their state pension, resulting in the 'new' state pension climbing to £11,502.40 annually. Consequently, those receiving the full new state pension will witness their weekly income surge from £203.85 to £221.20. Similarly, beneficiaries of the 'old' state pension (for individuals who reached state pension age before April 6, 2016) will experience a weekly income increase from £156.20 to £169.50, amounting to £8,814 annually.

10. Mobile, Broadband and TV Bills will rise

Many individuals will find themselves taken aback by the substantial increases in their broadband, mobile phone, and TV package bills come April. These services often include built-in price hikes tied to the Retail Price Index (RPI) measure of inflation. Due to the recent high inflation rates, coupled with additional increments above RPI, these adjustments translate into significant rises in bills.

For instance, O2 will implement an 8.8% increase for certain mobile phone customers, while Virgin Media subscribers will also face an 8.8% uptick in their TV and broadband package fees. To circumvent these price hikes, one option is to switch providers. Alternatively, you can negotiate with your current provider to lower your monthly expenses.

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11. Council Tax Increases by Almost 5%

According to a survey conducted by the County Councils Network, the majority of councils are planning to raise their council tax by the maximum allowable amount of 4.99% starting in April. The precise increase you'll experience depends on your local borough and property band. However, for the average Band D property in the UK, a 4.99% increase would result in the council tax rising to £2,168 from April, marking a £103 increase.

Individuals facing difficulty with their bills should inquire about potential eligibility for additional support or reductions in their bills.

12. Energy Bills Drop by 12%

Starting in April, the Energy Price Cap will decrease by 12%, providing some relief to many households by making energy bills slightly cheaper. This adjustment will bring the price cap for the average household down to £1,690 annually, representing a drop of almost £240 per year. Although this reduction will bring typical bills to their lowest level in two years, it's important to note that energy costs remain significantly higher compared to three years ago when the price cap was set at £1,138.