Happy New Tax Year!

Happy New Tax Year!

Happy new tax year! In all seriousness, it is important to be aware of some of the key allowance and rule changes for 2024/25. We have summarised some of the relevant changes below.

ISA Allowance

The ISA allowance of £20,000 you may have come to be familiar with has been frozen for 2024/25. At a time where many tax allowances are being cut, savers and investors can continue to save and invest just as much as last year in a tax efficient manner. This is good news for those looking to invest into a Stocks and Shares ISA or earn interest through a Cash ISA.

For those interested in Junior ISAs & Lifetime ISAs, no changes have been made to these products. Maximum contributions remain at £9,000 and £4,000 respectively.

At the recent Budget, the Chancellor announced the creation of a British ISA. The general idea here is to allow an additional £5,000 of ISA contributions on top of the existing £20,000, but only if the money is mostly invested in UK companies. There may be an argument this new product will be useful for some investors and UK businesses. Despite this, it is early days yet and many of the investment platforms are yet to adapt to these changes. We will keep a close eye on how this product develops in the coming months.

Capital Gains Allowance

From £12,300 in 2022/23, to £6,000 in 2023/24, the Capital Gains Allowance is now at the lower amount of £3,000 for 2024/2025. Many of you will have had investments held outside of an ISA or pension that have grown over the years. When an investment that is held outside of a tax efficient account such as an ISA or pension is sold, this creates a gain or loss that could be taxable.

While these reforms do make it more difficult to limit capital gains tax liability, capital gains tax is still one of the better taxes to pay. For taxable gains in investments like stocks and shares, it is charged at 10% for a basic rate taxpayer and 20% for higher rate taxpayers.

The good news is that many investors have been moving their money from their GIA to an ISA each tax year when the capital gains allowance was more generous. This work in the past is now paying dividends now as less of their investments will be subject to capital gains tax.

Dividend Allowance

The dividend allowance has now been reduced from £1,000 to £500 for this tax year. For many business owners, this will increase their tax liability. This, alongside the changes to corporation tax in recent years has further increased the tax burden for many business owners. Now more than ever, pension contributions remain an excellent way to manage tax liability to shield business owners from the increasing tax burden.

High Income Child Benefit Charge

At the recent Budget, the Chancellor announced that the child benefit tax charge threshold would be raised from £50,000 to £60,000. Also, instead of a withdrawal of the benefit of £1 for every £2, it is now £1 for every £4. This means that the loss of child benefit is complete at £80,000 instead of £60,000 as per the previous arrangements.

If you have had your child benefit reduced or withdrawn in the past, it now makes sense to reassess your entitlement. You may find that you are now entitled to a lot more child benefit income than what you received in previous years.

Closing Note

With the opening and closing of each tax year, it is important we keep up to date with and adapt certain strategies with the latest allowance and rule changes. However, if we zoom out, the fundamental principles for us financial planners remain the same:

1. A good financial plan is tailored to an individual’s needs.
2. Minimise the tax and investment cost burden whenever possible.
3. Investment is a long-term process.
4. Be accessible to our client’s queries whenever they arise.

 

PLEASE NOTE:

This blog is for general information only and does not constitute advice. If you require personalised advice, please contact us. The information is aimed at retail clients only.