Now that tax year 2024-25 is behind and your new tax year allowances have reset, it’s important to understand what’s changed and how this could affect your individual circumstances.
In this article, we’ll outline some of the changes the government has made to its tax regime and explain how they could impact you.
Beware of ISA changes
Even though the government didn’t announce changes to individual savings allowances (ISAs) to come into effect this tax year, it confirmed that it is considering a reform of the ISA regime.
This means your £20,000 tax-free allowance remains in place for tax year 2025-26. But a potential reform on the horizon heightens the importance of making use of this allowance the best you can.
Hike in employers’ National Insurance Contributions
Starting 6 April, National Insurance contributions (NICs) increased to 15% from 13.8% the previous tax year.
In addition, the secondary threshold – meaning the point at which employers must pay NICs – has gone down from £9,100 to £5,000.
These changes will put upwards pressure on staffing costs for business owners, and lead to difficult decisions such as restructurings, pay or bonus freezes, or a re-evaluation of recruitment plans.
Similarly, this hike is likely to impact individuals who act as employers. For instance, families who act as employers for the purposes of childcare (nannies or au pairs) could also feel an uptick in costs. For a family paying an annual salary of £50,000 per year to someone for private childcare, NICs costs have risen by £1,104.65 in the new tax year compared with last year.
Regardless of whether this increase might make a difference in your annual spending and costs, it provides a timely opportunity to think about gifting. If a member of your family undertakes any private childcare, gifting them money to cover the costs could be a welcome and opportune gesture. Remember, you’re allowed to gift up to £3,000 per tax year without the value of your gifts becoming part of your estate (and being included in your Inheritance Tax (IHT) calculations)!
A new regime for new recent arrivals to the UK
Following the abolishment of the remittance basis regime and the start of the new Foreign Income and Gains (FIG) regime at the start of the year, those previously considered “non-domiciles” and other new UK arrivals now have different tax considerations.
In brief, new UK tax residents may be able to shield offshore income and gains from UK tax for up to four years and still have access to them in the UK. However, previous remittance basis users need to review their historic use of that regime, consider whether any of the transitionary reliefs are beneficial to them and understand how they can use offshore funds in the future.
The new rules also impact the use of trusts and application of IHT to temporary residents, so an analysis of any previous advice or inheritance tax planning would be prudent.
Further information about these changes can be found in our international guides and blogs. Alternatively, please do contact a member of our International Team
Capital Gains Tax changes
From a Capital Gains Tax (CGT) perspective, the good news is the annual allowance of £3,000 (your gains before starting to pay tax on them) hasn’t changed. The not-so-good news is that the rate of CGT has gone up from 20% to 24%, for higher rate and additional rate tax payers, and up from 10% to 18% for basic rate tax payers. These measures took effect when announced by Chancellor Rachel Reeves in the Autumn Budget (30 October 2024).
Individuals should consider the best way of selling assets as part of their tax optimisation strategies. As CGT is an extremely complicated tax, we recommend seeking financial advice to ensure you’re selling your assets in the most tax-efficient way. We can help you plan your wealth over the course of your lifetime, ensuring that you make maximum use of the tax-free allowances and tax breaks available to you with our Tax Optimisation Strategy.
For married clients, using the spousal exemption can be very tax efficient if you transfer assets with gains to a lower tax status spouse and use their allowance and pay CGT at the lower rate of 18%. When this is done methodically it can save tax and add value to the overall returns.
Pensions
For higher earners there is the opportunity to make pension contributions for spouses with lower earnings. The allowance is £60,000 and you can also use carry forward which brings the past three tax years’ income into play. This can be quite complex, and you will need to speak to a financial adviser if you think that this might be applicable to you. Even where there are no earnings in the spouse’s name, you can still make a contribution of £3,600 (gross) and receive 20% tax relief at source.
Enterprise Investment Schemes and Venture Capital Trusts
Enterprise Investment Schemes (EISs) and Venture Capital Trusts (VCT) offer 30% income tax relief on the qualifying investments and could form part of the overall investment strategy for those who have used all of their other allowances. While these schemes are extremely tax efficient vehicles, it is crucial to take care when investing due to the high-risk nature associated with investing in small businesses.
Inheritance Tax
IHT is clearly high on the agenda for many of our clients, particularly those that may have been holding personal pension assets for future generations’ benefit, as currently they are not subject to IHT, but will become part of the taxable estate on the 6 of April 2027 under the current proposals. Unless the Labour government change their view before this date, we must assume that this will come into effect. Estate planning is one of the key areas that we can help our clients with, so please do get in touch if you want to have a discussion around the strategies that we can employ.
For some of our clients who have income in excess of their needs, they can also use the out of income exemption. This is one of the most under-utilised exemptions but if you can demonstrate that you have surplus income, then you can gift this on a regular basis, and it is outside of your estate.
We are mindful that some clients may not wish to immediately relinquish oversight of funds or might not be able to determine with total certainty their future personal needs. Therefore, this is where careful planning and potential use of trusts or other structures might be useful. We regularly work with clients to organise estate planning gifts, whist retaining some access to liquidity, without breaching the Gift with Reservation of Benefit (GROB) rules.
Renting a holiday home? Prepare for higher rent prices
The Labour government has also been making it extremely clear that it wants individuals to buy property instead of renting, making it more costly for individuals to hold multiple properties as part of their estate.
From 1 April, individuals renting out a furnished holiday home no longer benefit from preferential tax treatment compared with residential rental properties. This means holiday homeowners no longer receive tax relief on chargeable gains for trading business assets.
Time to plan
Even though the new tax year has just begun, it’s never too early to start planning. In our experience, having a conversation about financial planning can have a significant impact on individuals – and most are looking for reassurance that they’re on track to live the retirement of their dreams. A conversation can achieve that.
If you would like to discuss any of the points raised, or simply check that you are on track with your finances, please call 020 7444 4030 or email us.
Please note that this article is intended for educational purposes only and should not be taken as investment advice. Tax rules are subject to change and taxation will vary depending on individual circumstances. The value of investments can go down as well as up and you could get back less than you invested. Investment in funds will not be suitable for everybody and you should make yourself aware of the risks before investing and if you are unsure, you should seek professional advice.