As we navigate through 2024, several significant tax changes in the UK are set to impact individuals and businesses alike. From adjustments in capital gains tax to reforms in the non-dom regime, staying informed is crucial for effective financial planning. Here’s a rundown of the most notable updates:
1. Capital Gains Tax Adjustments
One of the major changes in 2024 is the adjustment to the Capital Gains Tax (CGT) rates. The higher CGT rate on residential property has been reduced from 28% to 24% as of April 6, 2024. This reduction aims to ease the tax burden on landlords and second homeowners, potentially encouraging them to sell their properties and increase the housing supply for first-time buyers. However, the annual exempt amount for CGT has also been reduced significantly, from £6,000 to £3,000, which might offset some of the benefits of the rate reduction for those with modest gains (Moneyweek) (SageUS).
2. Dividend Allowance Reduction
The dividend allowance has been halved again for the 2024-25 tax year, now standing at just £500. This cut follows a previous reduction from £2,000 to £1,000 in the 2023/24 tax year. The impact will be felt most by higher and additional-rate taxpayers, who will face increased tax liabilities on their dividends. Basic-rate taxpayers will also see a slight increase in their tax bills. To mitigate this, investors are advised to consider moving their investments into tax-efficient accounts like ISAs or pensions (Moneyweek).
3. National Insurance Rate Cuts
Significant changes have been made to National Insurance (NI) contributions. From April 6, 2024, the main rate of class 1 NI contributions for employees was reduced from 12% to 8%. Similarly, for the self-employed, the class 4 NI rate has been reduced from 9% to 6%, and class 2 NI is no longer due. These reductions are expected to save workers hundreds of pounds annually, though overall tax liabilities might still rise due to other factors like fiscal drag (SageUS).
4. Abolition of the Non-Dom Regime
In a landmark decision, the government announced the abolition of the non-dom tax regime, effective from April 2025. This regime allowed certain wealthy individuals to avoid paying UK tax on their foreign income and gains. The new system will ensure that new arrivals to the UK, or those returning after a long absence, pay the same tax as residents after four years. This change aims to create a fairer tax environment while still keeping the UK attractive to international investors (The Law Society).
5. Changes to Research and Development Tax Reliefs
The Research and Development (R&D) tax reliefs have been simplified and merged into a new R&D Credit, equal to 20% of qualifying expenditure. This change is designed to streamline the application process and expand eligibility, particularly benefiting large companies. However, the support threshold for R&D-intensive SMEs has been lowered, making more businesses eligible for this relief.
6. Introduction of the Cash Basis for the Self-Employed
Starting April 6, 2024, the cash basis method for calculating profits will become the default for eligible sole traders and partners. This method simplifies tax calculations by focusing on actual cash flow rather than accrued income and expenses, potentially reducing administrative burdens for small businesses. The removal of size thresholds and restrictions on interest deductions and loss relief makes this option more accessible and beneficial to many more businesses.