Understanding Changes to UK Tax Allowances for 2024

This 2024/2025 tax year includes a set of tax changes that could spell good news for many of us.

Why the adjustments, you ask?

Well, it’s part of a plan to lighten the financial load on families and individuals, making life a little easier in times when every penny counts. Let’s dive into how these changes might affect you.

National Insurance Takes a Dip

National Insurance Contributions (NICs) are set to decrease. If you’re currently employed, you will enjoy a little extra in your wallets each payday. And if you’re self-employed, you’ll also benefit from reduced contributions.

This development opens opportunities for more financial flexibility, making it an ideal time to consider how these changes impact your financial planning.

To delve into specifics, the primary rate of Class 1 NICs for employees has been lowered to 8% from the previous 10%. For the self-employed, Class 4 NICs have decreased to 6% from 9%, and Class 2 NICs have been scrapped, positively affecting about two million people!

This means more of your earnings stay in your pocket, potentially increasing your disposable income for daily pleasures or future retirement savings. It’s a positive reminder of how even minor policy adjustments can have a significant impact on your financial health.

Your Paycheck And Taxes: What’s Changing?

The UK tax-free Personal Allowance remains at £12,570, which signals no immediate change for most, unless your income approaches higher brackets. It’s important to keep this in mind for those nearing these thresholds or dealing with the complexities of tax bands. The team at Joslin Rhodes is here to guide you through these scenarios.

Band	Tax rate	Taxable income (2023/24)	Taxable income (2024/25)
Personal Allowance	0%	Up to £12,570	Up to £12,570
Basic Rate	20%	£12,571 to £50,270	£12,571 to £50,270
Higher Rate	40%	£50,271 to £125,140	£50,271 to £125,140
Additional Rate	45%	Over £125,140	Over £125,140

Pensions and Planning For The Future

Pension adjustments are about to reshape retirement planning by introducing more generous allowances.

For the 2024/2025 tax year, the pension annual allowance is going up to £60,000 from £40,000. This is the total amount that you, your employer or any third party can contribute to in the tax year without facing any tax changes. And for those of you who have started taking your pension savings but want to keep paying into your plan, the money purchase annual allowance has increased from £4,000 to £10,000. This will allow you to pay in more without risking any tax liabilities.

The State Pension will also rise by 8.5% as confirmed in the Autumn Statement. This will affect you whether you’re eligible for the new flat-rate State Pension or the older basic State Pension.

From this month, those qualifying for a full new State Pension will receive £221.20 a week (up from £203.85). And those who reached State Pension age before April 2016, who are on a full basic State Pension, will get £169.50 – up from £156.20. The total for the full new State Pension to £11,502.40.

Even with this increase, the State Pension is less than a minimum wage salary, so if you want to ensure a comfortable future, this should only be one part of your retirement plan. But the biggest change of all to pensions is that the lifetime allowances are being abolished. The lifetime allowance was the total amount you could have in your pensions during your lifetime, across all pensions – before an additional tax charge took effect. In place of the lifetime allowance, there will be two new lump sum allowances.

For most people, the lump sum allowance (LSA) will limit the tax-free cash you can get from your pension to £268,275. The lump sum and death benefit allowance (LSDBA) will limit the total amount of tax-free cash you can get during your lifetime and when you die to £1,073,100. These adjustments might not shake up your daily financial routine right away, especially for those in working-class brackets, but they’re pivotal for planning a stable and secure retirement. These are the kinds of long-term financial shifts that can really shape your future financial health and retirement readiness.

ISA Limits Frozen

For the 2024/2025 tax year, the limits on Individual Savings Accounts (ISAs), including Cash ISAs, Junior ISAs, Lifetime ISAs and Child Trust Funds will be frozen. But you can now have multiple ISAs of the same type. You’ll also be allowed to have partial transfers of ISA funds from one provider to another.

Capital Gains Tax Allowance Will Be Halved

If you hold investments outside of an Individual Savings Account (ISA) or are planning on selling your home or other big assets, you need to be mindful of the new tax-free allowances. From April 2024, you can make gains (or profits) of up to £3,000 before paying any tax. This is down from £6,000 in 2023/2024 tax year.

Dividend Allowance Cut By 50%

While tax rates on dividend income are unchanged, the dividend allowance will be cut by half to just £500. This is a notable change for those who are self-employed.

The National Living Wage is Going Up

There’s great news for individuals earning the minimum wage as an increase in your wages is on its way! This adjustment is not only straightforward but incredibly beneficial, offering you enhanced flexibility with your finances.

Starting from the 1st of April 2024, the National Living Wage for those aged 21 and over is set to rise to £11.44. Additionally, there are planned increases in the National Minimum Wage for other age groups, ensuring a broad spectrum of workers will see benefits from these adjustments.

This change is particularly beneficial for lower-paid workers, leading to a boost in gross income and potentially more disposable income.

Age (Years)	From April 2023	From April 2024
23 and over	£10.42	£11.44
21-22	£10.18	£11.44
18-20	£7.49	£8.60
Under 18	£5.28	£6.40
Apprentices*	£5.28	£6.40

*Apprentices under the age of 19 or those in their first year of apprenticeship, regardless of age, are subject to a specific wage rate. After completing their first year and upon reaching the age of 20, apprentices are eligible to earn the minimum wage applicable to their age group.

Why You Should Reach Out

The tax year changes for 2024 are all about giving you a bit more leeway with your finances, whether it’s through reduced taxes, higher wages, or more favourable conditions for families.

For those in Stockton-on-Tees and beyond, understanding these changes is crucial for maximising your financial health.

Not sure how it all applies to you? Joslin Rhodes’ pension and retirement advice and estate planning teams are just a call away, ready to help you navigate these changes and plan for a brighter future.

Reach out today and take the first step towards optimising your finances in light of the new tax year changes.

Joslin Rhodes Pension & Retirement Planning – Real Advice, For Real People