Now roughly a month into the new tax year, it’s imperative to keep up to date with the latest developments that could impact your financial decisions. Learning how to triumph over tax changes & the looming election for financial success, is critical. Let’s explore the implications of the conclusion of the 2023/24 tax year and the changes we must now consider.
CGT and Dividend Allowances Reduced
One significant change pertains to capital gains tax (CGT) and dividend allowances.
In the last tax year, the tax-free allowances stood at £6,000 for CGT and £1,000 for dividends. However, effective from 6th April 2024, these allowances have been halved to £3,000 and £500 respectively.
This will significantly affect numerous aspects of financial planning. Even a simple strategy like a bed and ISA will be impacted by the reduction in CGT, potentially resulting in the inability to fully utilise the ISA allowance in the tax year without incurring taxes, especially if there has been substantial growth.
Essentially, transferring funds from a general investment account to an ISA may now have tax implications.
Furthermore, the higher CGT rate on residential property will decrease from 28% to 24%. This change presents a mixed bag for landlords, as not all will necessarily benefit from the rate cut due to the lower CGT allowance.
More information can be found here.
Lifetime Allowance Scrapped
Another notable alteration is the elimination of the lifetime allowance for pensions contributions.
Previously capped at £1,073,100 before a charge is due, this restriction has been removed. However, keep in mind that there’s still a limit of £268,275 for tax-free lump sum withdrawals.
Additionally, the £60,000 annual allowance remains unchanged.
It’s also worth noting that if Labour wins the election, it might reinstate the lifetime allowance. However, it’s crucial to focus on planning for the present rather than speculating about potential future outcomes.
Fortunately, the state pension triple lock remains secure for the time being. Pensioners have been reassured of the importance of this measure as they begin to receive the initial boosted payment for the new tax year.
Maximising Your ISA Benefits
Remember, investments within an ISA remain shielded from capital gains and dividend taxes, making them a valuable asset in your portfolio. Investing early in the tax year allows your money more time to grow, emphasising the importance of consistent contributions over time.
However, the reduction in CGT allowance may mean you have to pay some tax to get the money in there in the first place.
In a move towards greater flexibility, individuals can now contribute to multiple ISAs of the same type within a tax year, previously, it was a case of one ISA of each type, each tax year.
For instance, you can hold two stocks and shares ISAs with different providers simultaneously. However, be cautious of potential fees associated with multiple accounts and ensure you stay within the £20,000 annual ISA allowance.
Impact of the Looming Election on Financial Planning
As we navigate through the intricacies of the new tax year, it’s crucial to consider the broader political landscape, particularly with the looming election on the horizon. The outcome of this election could potentially reshape the financial landscape, influencing the implications of the tax changes discussed.
If Labour were to win the election, there’s a possibility of reinstating the lifetime allowance for pensions contributions. This move would significantly impact retirement planning strategies, potentially altering the current landscape where the lifetime allowance has been scrapped. Such a change could prompt individuals to reevaluate their pension investment strategies and retirement goals.
Moreover, Labour’s victory could also signal a shift in other areas of taxation and fiscal policy, potentially impacting CGT and dividend allowances, among other things. Businesses and individuals alike may need to adapt their financial plans and investment strategies accordingly, taking into account the potential changes in tax regulations under a new government.
However, it’s essential to approach financial planning with a focus on the present rather than speculating about future outcomes. While the possibility of policy changes under a new government is worth considering, it’s equally important to make informed decisions based on the current tax landscape and individual financial circumstances.
Summary
In summary, as we transition into the new tax year, several significant changes in tax regulations have emerged, impacting various aspects of financial planning. The reduction in CGT and dividend allowances pose challenges for individuals and businesses alike. Additionally, the elimination of the lifetime allowance for pensions contributions highlights the importance of a proactive approach in financial decision-making.
The above is for information purposes only and should not be taken as advice.
The tax treatment is dependent on individual circumstances and may be subject to change in future.
The value of units can fall as well as rise, and you may not get back all of your original investment.
Advice on taxation is not regulated by the Financial Conduct Authority.
