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New tax year planning - April 25th 2024

Much tax planning is rightly focused on the end of the tax year with a view to making the most of all available tax reliefs and allowances, but it is also important to be aware of key changes at the start of a new tax year so that you can plan for them.

The tax year that started on 6 April 2024 brought several significant measures.

National insurance contributions (NICs): The main rate of employee NICs has been cut to 8% and the rate for self-employed people went down to 6%. The changes represent an annual saving of up to £750 for employees and £1,130 for self-employed people. The band of earnings on which the main rates are paid is unchanged, which disproportionately benefits higher earners. Self-employed people will no longer have to pay Class 2 NICs. However, those with profits below the small profits threshold of £6,725 may wish to make voluntary contributions of £3.45 a week to retain access to contributory benefits such as the state pension.

Dividend allowance: Only the first £500 of dividends is now tax free, down from £1,000 in 2023/24. This, alongside the Class 4 NIC reduction, may make self-employment more attractive than working through a limited company. There are many other factors to take into account in any decision.

Capital gains tax (CGT): The annual exempt amount is now just £3,000. However, landlords will welcome the cut from 28% to 24% in the CGT higher rate on residential property.

Cash basis: The cash basis is now the default method of calculating business profits for self assessment and the £150,000 and £300,000 turnover thresholds have gone. Business records must therefore be kept using the cash basis. However you can opt for the traditional accruals method instead.

Furnished holiday lettings: The beneficial regime for landlords for short-term letting of furnished accommodation will be abolished from 6 April 2025. Property owners will no longer be able to claim capital allowances on furniture and fixtures, or business capital gains tax reliefs. The income will no longer count as pensionable earnings, which may affect pension planning.

VAT: The registration threshold has risen to £90,000 and the deregistration threshold is now £88,000. Some businesses will benefit from deregistering.

Non-domicile status: The remittance basis of taxation for individuals not domiciled in the UK will be replaced from 6 April 2025 with an optional Foreign Income and Gains (FIG) regime based on residence, which will be available for up to four years. After that period, all UK residents will be taxed on their worldwide income, as will non-doms who do not opt into the FIG regime. There will be transitional provisions for non-doms who do not qualify for the FIG regime. The change will also result in tax being charged on an arising basis on income and gains within some non-resident trusts. Non-doms will need to prepare for these changes.

Non-dom inheritance tax (IHT): The government has said it will consult on plans to move to a residence-based regime for IHT. Non-UK assets held by non-UK trusts that benefit from excluded property status are currently expected to remain outside the scope of IHT, which may offer some opportunities for advance planning.

If you may be affected by any of these changes, please get in touch to discuss your planning.