With a raft of major tax changes taking effect next month, Katy Ward reveals what these new rules could mean for your money
As the start of the new tax year, April is arguably the most important month for our finances.
And as we all know, any increases in our tax bill can drastically impact the amount of cash we have to spend each month.
In this article, we explore some of the changes coming into force on 6 April and how these could affect your bank balance.
20 ways to pay less tax: cut your Income Tax, Council Tax and Inheritance Tax
1. National Insurance to fall by 2p…
Under changes announced by chancellor Jeremy Hunt in last month’s Budget, the rate of National Insurance (NI) for workers will drop by 2p from 6 April.
This follows a similar announcement in last year’s Autumn Statement.
During his Budget speech, the chancellor said this cut will save the average worker £450 per year.
Overall, these two cuts would equal an annual saving of £900 for someone earning a salary of £35,000.
BUT personal allowances are frozen
While any cuts to NI rates are welcome news, the Budget also included a freeze on the thresholds at which we start paying Income Tax.
These will be held at £12,570 for Basic Rate taxpayers, £50,270 for Higher Rate taxpayers and £125,140 for Additional Rate taxpayers until at least 2028.
As a result, many of us are being pushed into the Higher Rate tax bracket.
The Office for Budget Responsibility estimates that the move will force 2.7 million more people into the higher band by 2028.
Opinion: this ‘low tax’ Budget hammers those who are struggling
2. Council Tax hiked by 5.1%
For most of us, the new tax year will mean higher Council Tax bills.
According to Government data, the average yearly bill in England will increase by 5.1% to £2,065.
While this represents an average increase of £106 per year, there are regional differences to consider.
This is especially true in cases where councils have effectively been declared bankrupt.
For example, local authorities in Woking, Birmingham, Slough and Thurrock have permission to increase rates by more than 10%.
In Wales, the average bill is set to rise by 7.7%, while Council Tax is frozen in Scotland until 2025.
Council Tax increases 2024/25: how some can cut their bill
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3. Long-awaited changes to Child Benefit
The Budget also saw big changes to Child Benefit for parents earning more than £50,270.
Under current rules, this benefit is slowly tapered back for those earning more than this figure, with someone earning £60,000 receiving nothing.
This is known as the High Income Child Benefit Charge (HICBC).
Historically, these thresholds have received significant criticism for failing to consider total household income.
For example, a family with two parents both earning £50,000 can get the full amount but a single-income household earning £60,000 isn’t eligible for any Child Benefit.
From next month, however, the threshold for HICBC will increase from £50,000 to £60,000, while the level at which the benefit is completely removed will go up to £80,000.
According to Government figures, the change will leave approximately half a million families £1,260 better off next year.
These limits will apply until April 2026 when a new system will come into force that takes into account combined household earnings.
4. Capital Gains Tax cuts for high earners
Capital Gains Tax (CGT) is levied on profits from the sale of assets, such as investment property, stocks, or business assets.
In one of the chancellor’s biggest Budget surprises, he announced a 4% fall in the rate Higher and Additional rate taxpayers will fork out for profits on residential property sales – dropping from 28% to 24%.
The Government argues that the change will encourage buy-to-let landlords to sell second properties, which will introduce fresh housing stock into the market.
Bear in mind, you won’t be affected by this change if you’re a Basic Rate taxpayer, or a Higher/Additional Rate taxpayer selling another type of asset.
Check out our to-do list for the end of the tax year
5. Dividend Tax allowance halved
As of next month, annual allowances for Dividend Tax will fall from £1,000 to a measly £500.
Dividend Tax is charged on payouts that relate to share profits from a business. However, we all have an annual amount we can earn before this tax kicks in.
The allowance has been falling steadily since 2017 when it stood at £5,000.
The rate of Dividend Tax you pay depends on your income. Basic Rate taxpayers pay 8.75%, those in the Higher Rate bracket pay 33.75%, and Additional Rate taxpayers face a 39.35% bill.
As many business owners pay themselves in dividends rather than an annual salary, this change will likely cause the most pain for self-employed people.