How to reduce the impact of the April tax increases

The April 2024 tax changes at a glance

Personal Taxation 

• Scottish income tax changes 
• Dividend allowance reduction  
• Frozen tax rates 
• National Insurance rate changes  
• Reduced Capital Gains Tax annual exempt amount 
• Reduced Capital Gains Tax higher rate 
• High income child benefit charge changes 
• ISA rule changes 

Business Taxation 

• VAT thresholds increased

Personal Taxation 

Scottish income tax changes

A new income tax advance rate threshold has been introduced from £75,001 to £125,140 at 45% from 6th April 2024. 

As announced in the Scottish Budget, the top tax rate in Scotland will also be increased to 48%. 

Tax tip – consider tax efficient pension saving

Higher rate taxpayers face two tax traps from April 2024:

1. Where income exceeds £125,140, you pay the additional rate of income tax, which is 45% (48% in Scotland).  
2. Also, where your income is between £100,000 and £125,140, you are subject to an effective tax rate of around 60%. This is because, after your income exceeds £100,000, your personal allowance is reduced by £1 for every £2 you go over the £100,000 tax bracket.

You may be able to reduce your tax exposure by making personal pension contributions and charitable donations.

For a basic rate taxpayer who wants to save £100 into their personal pension plan, the effective cost is only £80. For a higher rate taxpayer, to save £100 could effectively cost as little as £60 (£58 in Scotland). The cost drops down further to only £55 (£53 in Scotland) for an additional rate taxpayer.

While potentially extremely tax efficient, there are a number of pitfalls which you should consider before taking action. Importantly, the amount that may be saved into a personal pension is limited, so you should review your position before taking action.

You may also need to take investment advice from a qualified financial adviser. We can introduce you to TaxAssist Financial Services who can advise you on all aspects of your financial affairs, including independent advice on pensions and retirement planning.

Dividend allowance reduction 

Individuals have a dividend allowance each year which means they only pay tax on any dividend income above this dividend allowance.

The dividend allowance will reduce from £1,000 to £500 from April 2024.  The amount of tax you pay on dividends above the dividend allowance depends on your income tax band, and the following rates apply from April 2024: 

Basic rate taxpayer	8.75%
Higher rate taxpayer	33.75%
Additional rate taxpayer	39.35%

Tax tip – make sure your remuneration strategy is tax efficient

Recipients of dividend investment income and company owners who extract profits through dividends, will now face higher tax bills resulting from the reduced allowance.  

For company owners, you should review your remuneration strategy and speak with your accountant to ensure the way you extract your investment is most efficient.

Frozen tax rates

The freezing of many tax allowances until 2028 means that taxpayers on modest incomes will also pay more tax as inflation bites. The income tax personal allowance of £12,570 is frozen until 2028 and this will impact basic rate taxpayers as more of your income effectively becomes subject to tax.

Tax tip – can transferring assets improve your tax position?

It is possible to gift some or all of any income producing assets you own to your spouse or civil partner and save tax. Generally, for this to work, your gift must be to your spouse or civil partner from whom you have not separated and be an unconditional gift. Professional advice should always be taken, so your individual circumstances can be reviewed prior to taking action.

Basic rate taxpayers may also be able to transfer £1,260 of their unused personal allowance to their spouse or civil partner to save tax. This only applies where neither of you is a higher-rate taxpayer.

National Insurance rate changes

From 6th April 2024, the class 1 main rate for employees will reduce to 8% for workers earning between £12,570 and £50,270. Class 2 has also been abolished, with sole traders with profits over £12,570 no longer needing to pay class 2. The main rate of class 4 will reduce to 6% on profits between £12,570 and £50,270. 

Employers generally start to pay 13.8% Class 1 Secondary NICs on their employees’ wages at £9,100.

This threshold will also remain until April 2028.  

Tax tip – can you claim the Employment Allowance?

As eligible companies can claim the Employment Allowance to reduce their employers annual National Insurance liability by up to £5,000, you should check if this can be claimed.

Broadly, you can claim Employment Allowance if you’re a business and your employer’s Class 1 National Insurance liabilities were less than £100,000 in the previous tax year. Exceptions apply, the most important being that you can’t claim if you’re a company with only one employee paid above the Class 1 National Insurance secondary threshold and the employee is also a director of the company.

Reduced Capital Gains Tax annual exempt amount

From April 2024, the Capital Gains Tax (CGT) exemption most individuals can claim will reduce from £6,000 to £3,000For anyone selling assets liable to CGT, they need to factor the additional tax which may arise from the reduction in the allowance.

Tax tip – make use of tax efficient investment options

Where you hold eligible investments outside of an ISA, you may have to pay CGT on any gains you make over the allowance. Now is a good time to consider making future savings within an ISA and potentially switching some investments into an ISA. Shifting investments into an ISA can count as a taxable event for CGT purposes, so you should review your situation before taking action.

You should consider the need to take investment advice from a registered financial adviser and we work closely with TaxAssist Financial Services who can offer independent investment advice and a full range of services for your financial planning needs.

Reduced Capital Gains Tax higher rate 

From April 2024, the higher rate of CGT applicable to the sale of residential properties will reduce from 28% to 24%. 

Tax tip – ask your accountant to prepare tax planning

By completing a tax planning exercise with your accountant, you can plan any disposals that may be chargeable to CGT and manage the dates of these disposals. 

High Income Child Benefit Charge changes 

The threshold for the High Income Child Benefit Charge (HICBC) is increasing to £60,000 from 6th April 2024, individuals earning below this will not need to pay tax on child benefit income. The taper rate has also been reduced and those earning between £60,000 and £80,000 will be liable to a tax charge. 

Tax tip – register for child benefit and opt out of payments 

To ensure you’re getting National Insurance credits, which count towards your state pension, you should still register for child benefit even if you or your partner is over the threshold. You should state on the form that you do not want to get payments.

Business Taxation 

VAT thresholds increase 

The VAT registration and deregistration thresholds are increasing from 1st April 2024. The thresholds will be £90,000 and £88,000 respectively.  

Tax tip – switch VAT schemes 

Switching to a different VAT scheme could potentially reduce the administrative burden or defer the time when VAT becomes payable. 

Give your business a head start today

Dedicating time now to look ahead at the financial year, will mean you will have a comprehensive plan in place for the coming months. If you need any help or advice with the financial aspects of running your business, please call us today on 0131 445 3330 or complete our online enquiry form.

Date published 24 Feb 2023 | Last updated 26 Apr 2024

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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