Five changes happening in the new tax year that you need to know about
The new 2024/25 tax year starts on April 6, bringing with it a raft of tax, benefit and other money changes that could impact you financially.
Here, we look at some of the key changes and what they are likely to mean for you.
National Insurance Contributions (NIC) are reducing
The main rate of Class 1 employee NICs will fall from 10% to 8% when the new tax year begins. This follows the two percentage point cut announced in the Autumn Statement which came into effect earlier in the year.
According to calculations by Quilter, the new 2p NI reduction, when combined with the original 2p reduction, will see a worker on the average salary of £34,944 take home an extra £17.21 a week, or £894.96 a year.
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Shaun Moore, tax and financial planning expert at Quilter, said: “This change will certainly be a crowd pleaser with the average worker earning £34,944 a year being around £75 better off a month if you also take into account the national insurance cut announced at the Autumn Statement. However, while this cut will provide a much-needed boost for many, income tax thresholds remain frozen until 2028 which in reality may mean people are worse off.”
New ISA rules
Although the 2024/25 tax year won’t see any changes to the £20,000 annual allowance that can be paid into tax-efficient individual savings accounts (ISAs), ISA rules are changing to make these accounts more flexible.
For example, from April 6, you’ll be able to open multiple ISAs of the same type in any one tax year, whereas currently you can only open one of each type.
Katie Brain, consumer banking expert at Defaqto said: “An example of how this could be used would be if a person put £5,000 in an instant access ISA as a rainy-day fund, £10,000 in a 1 Year Fixed Rate ISA, and £5,000 in a 2 Year Fixed Rate ISA. This would mean savers can take advantage of the best interest rates for different levels of access required.”
Partial transfers from existing ISAs will also be allowed, so you will be able to transfer part of an existing ISA balance from one ISA provider to the other.
Find out more about ISAs by clicking here
State Pension to rise
The state pension increases by 8.5% on 8 April, so those receiving the new full state pension will see their weekly pension jump to £221.20, or £11,502 a year. Those receiving the basic state pension will see their weekly pension rise to £169.50, or £8,814 a year.
The arrival of a new tax year 2024/25 will, however, not see any changes to the standard tax-free Personal Allowance (the amount of income that a person does not have to pay tax on). This will remain frozen at £12,570, which means more pensioners could end up having to pay tax if they have other income to supplement their State Pension. The Personal Allowance is expected to be held at this level until April 2028.
Becky O’Connor, Director of Public Affairs at PensionBee, said: “While lower than last year’s increase, which saw the State Pension increase by 10.1% in line with inflation, many pensioners receiving a full State Pension will now only require a small amount of extra income - from a personal or workplace pension, or from part-time earnings being dragged into the tax net.”
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Dividend Allowance to reduce
Dividend income tax rates aren’t changing in the 2024/25 tax year, but the tax-free allowance for dividend income is reducing from £1,000 to £500 as of the 6 April. It’s estimated that this will affect more than 4.4m individuals this tax year alone, with the average loss of those that are impacted expected to be around £155.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “If you hold investments outside an ISA, the fact that the dividend tax allowance has been halved, to £500, means investors run the risk of paying tax on their dividends far earlier in the year.”
Capital gains tax allowance halved
The capital gains tax allowance is being halved from £6,000 to £3,000 from April 6. Capital gains tax is payable on the profit when you sell something that's increased in value. For example, if you bought an antique for £2,000 and sold it later for £10,000, you’ve made a gain of £8,000. In this case, as your taxable gains are above your tax-free allowance, you’ll need to report and pay capital gains tax.
A spokesman for finance experts RIFT said; “This reduction in allowance will mean that individuals with gains in excess of the current allowance will pay more capital gains tax, while by 2024 to 2025 an estimated 260,000 individuals and trusts will be brought into the scope of capital gains tax for the first-time.”