You should have seen an increase in your take-home pay this month, as changes to the rate of employee National Insurance (NI) took effect.
The NI cut was announced in the chancellor’s Autumn Statement when Jeremy Hunt announced that his actions would reduce NI for around 29 million UK workers.
Keep reading for a closer look at this announcement, and why government allowance drops and threshold freezes could mean your overall tax bill is still set to rise in 2024.
The main rate of employee National Insurance reduced to 10% from January 2024
From 6 January 2024, the main rate of employee NI dropped by two percentage points from 12% to 10%. The change is calculated to save the average UK employee with a salary of £35,400 more than £450 a year.
If you’re self-employed, you’re also set to benefit from the Autumn Statement changes from April.
Class 2 National Insurance contributions (NICs) for the self-employed will be abolished from the start of the 2024/25 tax year (6 April).
This move will save the average self-employed worker £192 annually.
Class 4 NICs – for self-employed workers with earnings between £12,570 and £50,270 – will also fall from 6 April, from 9% to 8%.
Combined, these announcements could save the average self-employed worker earning £28,200 around £350 a year in 2024/25.
It’s important, though, to see these changes in a wider context, which means you’ll still need to budget carefully in the year ahead.
3 frozen or falling allowances that are a stealth tax on your income and could see your tax bill rise
Rishi Sunak opted to freeze some allowances (including the soon-to-be-abolished Lifetime Allowance) in his Spring Budget as chancellor back in 2021.
The freezes were intended to last until 2026, but many have since been extended to 2028. Some allowances are even dropping.
As your wages, investments, and house prices increase over the next few years, these freezes will amount to stealth taxes, increasing your bill while raising billions for the Treasury.
Here are three you’ll need to factor into your budgeting and financial plans:
1. Income Tax
Your Personal Allowance is the amount you can earn before you start paying tax.
It is currently frozen at £12,570 until 2028. Jeremy Hunt has also extended the freeze (also until 2028) on the £50,270 higher-rate threshold.
The freeze will see Income Tax receipts rise, with 2.6 million Brits moving into a higher tax bracket by 2027/28.
Income Tax affects not only your salary but your pension payments too. While a portion of the payments you receive might be tax-free (depending on the option you have chosen), a portion will also be taxed as income.
You’ll need to think carefully about how you receive your pension if you don’t want to accidentally move into a higher bracket.
2. Capital Gains Tax
MoneyAge reported in August 2023 that CGT receipts in 2021/22 hit a record high of £16.7 billion. More recently, the Office for Budget Responsibility estimated that CGT could raise £17.8 billion when figures for 2023/24 are calculated.
Receipts are rising due to a fall in the Annual Exempt Amount.
This determines the profit you can make before becoming liable for CGT when you dispose of certain assets. For the 2022/23 tax year, the Annual Exempt Amount stood at £12,300. It more than halved in 2023/24 to £6,000 and will halve again in April 2024 to just £3,000.
You’ll need to think carefully about the timing of the assets you sell and also consider using a partner’s exemption if this is an option.
Managing CGT can be tricky so be sure to get in touch before you make large disposals.
3. Inheritance Tax
Inheritance Tax (IHT) is usually paid at 40% on the qualifying portion of your estate – that is wealth that exceeds the nil-rate band.
This stands at £325,000. It has been frozen since 2009 and is due to remain at its current amount until at least 2028. The residence nil-rate band, which allows you to pass your home to your children or grandchildren, is also frozen. It reached £175,000 in 2020/21.
Rising property prices and investment returns over the intervening years will see your estate value rise and could mean you leave an IHT liability on death.
Remember, estate planning isn’t something to think about only later in life. It should be factored into your long-term planning from the outset, so get in touch now if you think your plans need revisiting.
Get in touch
If you’d like to get ready for tax year end, be sure to speak to us now. Get in touch by emailing hello@fingerprintfp.co.uk or calling 03452 100 100.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
