5th April – all change on the tax front

After much trialling the Chancellor has announced a few significant changes in the budget which will impact planning for some clients. The abolition of the non-dom rules will be subject to consultation to take effect from April 2024.  Closer to home, two other changes may impact our planning for clients.

Property Changes

For those with second properties, the furnished holiday lettings regime is ‘abolished’ which will likely reduce the attractiveness of property.  At the same time, the higher rate capital gains tax on residential property sales is reduced from 28% to 24% in a belief that this will encourage more sales. All to be considered in any discussion on the relative merits of residential property as an investment.

British ISA

The introduction of the British ISA will allow those who can afford it a further £5,000 p.a. of tax efficient investing.  We will be keeping a close eye on the detail around timescales, what products come to market and how best to manage an investment strategy across the tax wrappers.  We retain our conviction in a largely globally oriented investment strategy.

Notwithstanding changes announced in the budget, there are a few other changes which take effect from 5^th April this year as a result of last year’s announcements.  Firstly the Capital Gains Tax allowances reduces again to £3,000.  And secondly, the removal of the Lifetime Allowance calculation on pensions becomes embedded in the legislation.

Capital Gains Tax

The capital gains tax allowance has been gradually reduced over the last few years. In tax year 2023/24, the CGT allowance is £6,000. For the next tax year 2024/25, the allowance will be cut again to just £3,000. This means from April 2024, you will be liable to pay tax on any gains over this amount.

This will mean that more individuals are likely to end up paying some CGT.  Assuming say a 4% gain over a year then selling an asset or assets of over £75,000 will now potentially result in a gain.  The rate is of course lower than the income tax rate at 10% for basic rate tax payers and 20% for higher or additional rate payers (excluding gains on private residential assets).

We fully expect that as we continue to manage your portfolios we will now incur some tax liabilities, although do take tax into consideration to ensuring that our conviction in the investment decision is balanced by the potential tax due.

Lifetime Allowance moves to Lump Sum Allowance

With effect from April 2023 the tax charge on exceeding the Lifetime Allowance was reduced to zero and with effect from this April 2024, the legislation comes into effect which removes the whole concept of the Lifetime Allowance

Practically, the pact of the changes were felt last year and this is now a legislative tidy up.  It will make it harder for any future government to now re-introduce the Lifetime  Allowance because primary legislation would again be required. Pensions do though retain significant tax advantages and we doubt that all of those benefits will survive in the future. So while there is more flexibility now, it is important to keep an eye out for potential future changes.

As a reminder, the Lifetime allowance capped the amount of money that you could hold within a pension and a tax charge was made when you withdrew funds above that maximum.

This has been replaced by a Lump Sum Allowance at a fixed amount of £268,275.  This is the maximum amount that you can take tax free from your pension.

There is also a Lump Sum and Death Benefits Allowance set at £1,073,100.  Again this is a renaming of the old Lifetime Allowance and determines the amount that can be paid tax free on death.