Date | What’s Due |
19 March | Employer PAYE & NIC deductions, and CIS return and tax, for the month to 5/3/24 (due 22/3 if you pay electronically) |
1 April | Corporation tax payment for the year to 30/6/23 (unless quarterly instalments apply) |
5 April | End of the 2023/24 tax year – many tax planning actions need to have been taken by this date |
6 April | Start of the 2024/25 tax year |
19 April | Employer PAYE & NIC deductions, and CIS return and tax, for the month to 5/4/24 (due 22/4 if you pay electronically) |
30 April | Annual Tax on Enveloped Dwellings (ATED) returns and payment for the chargeable period starting on 1 April 2024 |
Spring Budget 2024
On 6 March 2024, Chancellor Jeremy Hunt presented his Spring Budget to Parliament. In the knowledge that the government must hold a general election before 28 January 2025, this was a Budget designed to restore confidence and win voters. But on the heels of Britain entering a recession and downgraded Office for Budget Responsibility (OBR) forecasts, the Chancellor had his work cut out.
Headlines included further cuts in National Insurance Contributions for workers and the self-employed, a slight increase in the VAT registration threshold and an increase in thresholds to reduce the number of people affected by the high-income child benefit charge. There has also been a cut in capital gains tax for higher earners disposing of residential property. However, income tax rates and thresholds remained static and inheritance tax continues to apply to the largest estates.
Income Tax
Please note that ‘tax years’ run to 5 April each year and that, for example, 2024/25 signifies the year to 5 April 2025.
Your personal allowance
Your tax-free personal allowance will remain at £12,570 in 2024/25. The personal allowance is partially withdrawn if your income is over £100,000 and then fully withdrawn if your income is over £125,140.
Income tax rates and allowances
For 2024/25, income tax rates and thresholds remain frozen at their 2023/24 levels.
After your tax-free ‘personal allowance’ has been deducted, your remaining income is taxed in bands in 2024/25 as follows.
‘Other income’ | Savings income | Dividend income | ||
Basic rate | £1 – £37,700 | 20% | 20% | 8.75% |
Higher rate | £37,701 – £125,140 | 40% | 40% | 33.75% |
Additional rate | Over £125,140 | 45% | 45% | 39.35% |
‘Other income’ means income other than from savings or dividends. This includes salaries, bonuses, profits made by a sole trader or partner in a business, rental income, pension income and anything else that is not exempt.
So what? Without inflationary increases to the income tax bands, the Chancellor is effectively imposing an income tax increase; as wages and earnings rise and a larger proportion falls into higher tax bands. This is known as ‘fiscal drag’.
Scottish taxpayers
If your main residence is in Scotland or you are otherwise classed as a ‘Scottish taxpayer’, the application of income tax rates and bands applies differently where ‘other income’ is concerned. After the ‘personal allowance’ has been deducted, your ‘other income’ is taxed in bands as follows:
2024/25 | 2023/24 | |||
Starter rate | £1 – £2,306 | 19% | £1 – £2,162 | 19% |
Basic rate | £2,307 – £13,991 | 20% | £2,163 – £13,118 | 20% |
Intermediate rate | £13,992 – £31,092 | 21% | £13,119 – £31,092 | 21% |
Higher rate | £31,093 – £62,430 | 42% | £31,093 – £125,140 | 42% |
Advanced rate | £62,431 – £125,140 | 45% | ||
Top rate | Over £125,140 | 48% | Over £125,140 | 47% |
The Scottish Budget was held on 19 December 2023 and made changes including the introduction of the new ‘advanced rate’ of income tax for 2024/25.
Tax on savings income
A savings allowance determines how much savings income you can receive at 0% taxation, instead of the usual tax rates for savings income as shown above.
This continues to be set at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers.
Further, interest income from an Individual Savings Account (ISA) continues to be exempt from tax.
Tax on dividend income
A dividend allowance determines how much dividend income you can receive at 0% taxation, instead of the usual tax rates for dividend income as shown above.
As expected, this allowance will drop to £500 in 2024/25, down from the £1,000 2023/24 allowance.
However, dividend income from a ‘stocks and shares’ ISA continues to be exempt from tax.
Individual Savings Accounts (ISAs)
The limit on how much you can save into ISAs (including cash and stocks and shares ISAs) in 2024/25 remains at £20,000 overall.
The Chancellor did announce that the government will introduce a new ‘UK ISA’ with an additional allowance of £5,000 a year but this is subject to consultation, and we do not yet have a start date.
The high-income child benefit charge
In an effort to reduce unfairness, the thresholds for the high-income child benefit charge (HICBC) will be increased from 2024/25.
You may have to pay the HICBC if you are considered to have ‘high income’ and child benefit is being paid in relation to a child that lives with you, regardless of whether you are a parent of that child. If you are living with another person in a marriage, civil-partnership or long-term relationship, you will only be liable to HICBC if you are the higher earner of the two of you.
2024/25 | 2023/24 | |
Child benefit ‘high-income’ threshold | £60,000 | £50,000 |
Income level at which child benefit is fully clawed back | £80,000 | £60,000 |
From 2024/25, the HICBC will be calculated at 1% of the child benefit received for every £200 of income above the threshold. This is a slower rate of claw back than in 2023/24 and now means that child benefit is only fully clawed back where income exceeds £80,000, rather than £60,000 in 2023/24.
The HICBC does not apply if the child benefit claimant opts out from receiving the payments.
The Chancellor also announced plans to administer the HICBC on the basis of total household income, rather than the income of the highest earner in the household, by April 2026.
So what? Disregarding for this purpose the other changes announced in the Budget, if we take a couple claiming child benefit in respect of two children and the higher earner earns £70,000, the household will be £1,106 better off than if the threshold had not been increased. If the higher earner instead earns £60,000, the household will be £2,212 better off in 2024/25 and the higher earner will not be required to submit a self-assessment tax return in respect of the HICBC.
Employment taxes
For employees
As announced in Autumn Statement 2023 and in effect since 6 January 2024, the main rate of Class 1 National Insurance Contributions (NICs) has already reduced from 12% to 10%.
In the Budget, the Chancellor cut this by a further 2 percentage points to 8%, taking effect from 6 April 2024.
For 2024/25, this combined 4% reduction will apply to your annual earnings between £12,570 and £50,270. The NIC rate on your earnings above £50,270 a year remains at 2%.
So what? This combined NIC reduction means that someone with employment income of, say, £50,000 will pay £1,497 less NICs in 2024/25 than if the rate had remained at 12%. Or, to look at it another way, their monthly pay packet will increase by almost £125.
For employers
There have been no changes to the rate or thresholds for employer’s Class 1 NICs, which remains at 13.8% for wages paid in excess of £9,100 a year (£175 per week). For eligible employers, the employment allowance remains at £5,000 per year, reducing their total employer’s NIC liability by this sum.
Benefits in kind
Employees are required to pay income tax on certain non-cash benefits. For example, the provision of a company car constitutes a taxable ‘benefit in kind’. Employers also pay Class 1A NIC at 13.8% on the value of benefits.
The set percentages used to calculate company car benefits are fixed until 5 April 2026 before slight increases apply to most car types, including electronic and ultra-low emission, from 6 April 2026.
The figures used to calculate benefits-in-kind on employer-provided vans, van fuel (for private journeys in company vans), and car fuel (for private journeys in company cars) remain fixed at their 2023/24 levels in 2024/25. These are:
- Van benefit £3,960
- Van fuel benefit £757
- Car fuel benefit multiplier £27,800
National Minimum Wage (NMW)
Employers must pay their employees at least the national living wage (for workers aged over 21) / national minimum wage. The minimum hourly rates change on 1 April each year and depend on the worker’s age and if they are an apprentice.
1 April 2024 – 31 March 2025 | 1 April 2023 – 31 March 2024 | |
Age 23 and over | £10.42 | |
Age 21 and over | £11.44 | |
21-22 year old rate | £10.18 | |
18-20 year old rate | £8.60 | £7.49 |
16-17 year old rate | £6.40 | £5.28 |
Apprentice rate | £6.40 | £5.28 |
These increases are not insubstantial, and the affordability of the rates will need to be carefully considered by employers when planning their headcount for the year ahead.
National Insurance for the self-employed
Self-employed individuals with profits of more than £12,570 a year pay two types of NIC: Class 2 and Class 4. Two key changes come into effect from 6 April 2024, as previously announced in Autumn Statement 2023 and further extended in this Budget:
- The main rate of Class 4 NICs will be cut from 9% to 6% in 2024/25. Class 4 NICs will continue to be calculated at 2% on profits over £50,270.
- Class 2 NICs will effectively be abolished, saving £179.40 per annum.
So what? This NIC reduction means that a sole trader with, say, trade profits of £50,000 will pay £1,302 less NICs in 2024/25 than will be due for the 2023/24 tax year. Just be aware that this saving may not be felt until the 2024/25 self-assessment balancing payment is made on or before 31 January 2026.
Entitlement to state benefits including the state pension
If you are self-employed, your Class 2 NIC payments have ensured you accrue entitlement to a range of state benefits, including the state pension. If your profits exceed £6,725 in 2024/25 you will continue to accrue entitlement to state benefits despite not paying Class 2 NICs. If your profits are less than £6,725, or you make a loss, you may need to pay Class 2 NICs on a voluntary basis to maintain your state benefit entitlement.
VAT
From 1 April 2024, the VAT registration threshold and deregistration thresholds will each increase by £5,000 to £90,000 and £88,000 respectively. The thresholds had previously been frozen at £85,000 and £83,000 since 1 April 2017. There have been no changes to the rates of VAT and the standard rate continues to be set at 20%.
Corporate taxes
Rates from 1 April 2024
Corporation tax rates and thresholds remain at the levels used in the year to 31 March 2024 as follows:
Financial year to 31 March 2025 | |
Main rate | 25% |
Small profits rate | 19% |
Lower threshold | £50,000 |
Upper threshold | £250,000 |
Marginal relief fraction | 3/200 |
Effective marginal relief rate | 26.5% |
Companies with profits between the lower and upper thresholds will qualify for marginal relief, which means they pay tax at 19% up to the lower threshold and at 26.5% on the remainder of the profits.
The thresholds must be equally shared between companies in a group and those controlled by the same person or persons.
It has been confirmed in the Budget that the same rates and thresholds will also apply in the year to 31 March 2026.
Research & Development (R&D) reliefs
For company accounting periods commencing on or after 1 April 2024, a new R&D scheme will come into effect, merging the current R&D Expenditure Credit (RDEC) scheme (for larger companies) with the Small and Medium Enterprise (SME) scheme. There will also be a second new R&D scheme for ‘R&D intensive SMEs’ along with other amendments as part of a government campaign to tackle fraud and abuse of the scheme.
These are significant changes and come on top of a raft of changes already seen in 2023.
Any company claiming (or considering claiming) R&D reliefs will need enhanced support to adopt the new rules and framework and make successful claims. Please do get in touch if we can assist you with this.
Annual Tax on Enveloped Dwellings (ATED)
Companies and some other entities may need to file ATED returns or pay ATED if they hold residential property. The rates of ATED will increase from 1 April 2024 so please contact us if you require any support with this.
Business tax
Tax relief for expenditure on plant and machinery
By way of a £1million Annual Investment Allowance (AIA) and, for companies only, unlimited ‘full expensing’, your business is likely to be able to claim 100% tax relief on qualifying equipment purchases.
Conditions may apply and, in some cases, the rate of tax relief in the year of purchase can be 50% or less. In particular, some connected or group businesses need to share their £1million AIA limit between them and this is something that HMRC are currently focusing on so please do talk to us if you have any concerns.
Motor vehicles
While vans and commercial vehicles will often qualify for 100% tax relief when purchased, the rate of tax relief for a car will be less, unless it is both brand-new and electric. The cost of buying other cars is tax relieved by way of an 18% or 6% annual writing down allowance, based on whether the car has carbon dioxide emissions of up to or more than 50g/km respectively.
HMRC had planned to update their guidance so that double-cab pick-ups with a payload of 1 tonne or more were reclassified from commercial goods vehicles to cars from 1 July 2024. This would have significantly hindered the tax reliefs available. However, in February they backtracked and committed to retaining the commercial vehicle tax treatment. Although it was not part of the Budget speech, legislation will soon follow to cement the commercial vehicle approach. This applies for both capital allowances and benefit-in-kind purposes (above).
Making Tax Digital (MTD)
Under the government’s MTD initiative, businesses will keep digital records and send a quarterly summary of their business income and expenses to HMRC using MTD-compatible software. These requirements will be phased in from April 2026, starting with income tax paying sole traders and property landlords with gross income over £50,000.
HMRC is re-launching its optional beta testing, with eligible businesses able to opt-in from April 2024. Please talk to us if you’d like to know more.
Using the cash basis to compute business profits
As first announced at last year’s Autumn Statement, it should be remembered that most unincorporated businesses will default onto the ‘cash basis’ of calculating taxable profits for the 2024/25 tax year and onwards. As a simplification measure for some, it will mean that your annual profits are calculated based on when you receive payments from customers and make payments to suppliers. Adjustments for stock and amounts owing by or to you will not be possible.
Some small businesses are already using the cash basis voluntarily and won’t be affected by the change.
It is possible to ‘opt-out’ of the cash basis and instead use traditional ‘accruals’ accounts (with adjustments for stock etc.) for tax purposes. The decision will affect the timing of your tax liabilities and will ultimately be based on your personal circumstances. Please talk to us for more information and to plan the approach for your business.
Tax relief for training costs
Alongside the Budget, HMRC has published updated guidance on tax deductions available to sole traders and self-employed individuals. Amid the AI revolution, the guidance clarifies that tax relief can be claimed on training costs relating to updating existing skills, maintaining pace with technological advancements, or changes in industry practices.
Capital Gains Tax
Annual exemption
The capital gains tax (CGT) annual exemption will drop to £3,000 in 2024/25, down from £6,000 in 2023/24. This change will mean that those selling capital assets such as property or shares will pay more tax.
Rates
The main rates of CGT remain at 10% for basic rate taxpayers (or those disposing of a business that qualifies for Business Asset Disposal Relief) and then 20% in most other cases.
However, increased rates apply when the asset being sold is a residential property that is not your private residence. From 6 April 2024, the residential property CGT rate will remain at 18% for basic rate taxpayers but will reduce from 28% to 24% for those with residential property gains falling outside of their basic rate band.
This measure is intended to generate more transactions in the property market, benefitting those looking to move home or get on the property ladder.
Remember, for property disposals that give rise to CGT, tax payment and reporting obligations can arise just 60 days after your completion date so make sure you take advice in good time.
Tax regime for furnished holiday lets
If you let out residential or commercial property, the profits are taxed as part of your ‘other income’. If you sell property that has been rented out, capital gains tax is likely to apply. Generally, rental business activity attracts fewer tax reliefs than trading ventures. However, if a residential property meets the strict definition of a ‘furnished holiday let’ (FHL), enhanced tax relief rules are currently available.
It has been announced in the Budget that, from 6 April 2025, the concept of FHLs and their beneficial tax treatment will be abolished. Going forward, profits from FHLs will be taxed in the same way as any other rental property profits. If you own FHLs this will be disappointing, especially the loss of your possible claim to ‘Business Asset Disposal Relief’ on any future sale.
While the abolition won’t happen until 6 April 2025, it should be noted that there will be measures in place from Budget Day (6 March 2024) to prevent tax planning steps that artificially accelerate the disposal date of an FHL to a date before 6 April 2025.
Please get in touch for a more detailed analysis of how the withdrawal of the FHL status will affect you.
Inheritance tax
Rates and thresholds
The main rate of inheritance tax remains at 40%, reduced to 36% for estates where 10% or more is left to charity.
The inheritance tax nil rate band continues to be frozen at £325,000. The residence nil rate band will also remain at £175,000 and the residence nil rate band taper will continue to start at £2million.
Agricultural property and woodlands relief
From 6 April 2024 the scope of agricultural property and woodlands relief will be limited to property in the UK. Property located in the European Economic Area (EEA), the Channel Islands and the Isle of Man will be treated the same as other property located outside the UK.
Payment of inheritance tax before probate
From 1 April 2024, personal representatives of estates will no longer need to have sought commercial loans to pay inheritance tax before applying to obtain a ‘grant on credit’ from HMRC. This is a welcome relaxation.
UK residency and domicile
Significant tax changes have been announced for individuals resident in the UK but not permanently settled here (known as non-domiciled).
While individuals resident and domiciled in the UK must pay UK taxes on their worldwide income and capital gains, it is possible for UK resident but non-domiciled individuals to claim a ‘remittance basis’ of taxation for overseas income and capital gains. In return for paying a remittance basis charge of up to £60,000 a year, non-domiciled individuals are able to shelter their overseas income and capital gains from UK taxation, as long as they do not bring (remit) those monies to the UK.
The remittance basis of taxation will be abolished from 6 April 2025. It will be replaced with a simpler residence-based regime and new arrivals to the UK will not pay UK tax on their overseas income and gains for their first 4 years of UK residence.
In addition, inheritance tax rules apply to the worldwide assets of a UK-domiciled individual but, broadly, just to the UK assets of a non UK-domiciled individual. The non-domicile rules for inheritance tax are also likely to move to a residence-based regime from 6 April 2025 but the government plans to consult on options.
If you are not domiciled in the UK, please talk to us about how the new rules and the transition to them will affect you.
Stamp duty
England and Northern Ireland – thresholds
The £250,000 0% threshold for Stamp Duty Land Tax (SDLT), applicable in England and Northern Ireland, remains unchanged until 31 March 2025. The same is true of the £425,000 0% threshold for first-time buyers.
These thresholds are set to revert to £125,000 and £300,000 respectively from 1 April 2025 and while there were rumours that the increased thresholds would be extended beyond 2025, no mention was made of this in the Budget.
England and Northern Ireland – Multiple Dwellings Relief
Multiple Dwellings Relief (MDR) is a relief currently available when buying two or more dwellings in a single transaction or series of linked transactions.
MDR is to be abolished for purchases of residential property in England and Northern Ireland with an effective date on or after 1 June 2024.
Transitional rules apply to the abolition, so that MDR can still be claimed in some situations where contracts were exchanged on or before 6 March 2024, regardless of when completion takes place.
First-time Buyers’ Relief: leases and nominees
Following the Budget, the definition of a ‘First-time Buyer’ has been amended. Anyone who leases a residential property via a nominee or bare trust with an effective date (usually the completion date) on or after 6 March 2024 will potentially be eligible for First-time Buyers’ Relief, in the same way as any other qualifying first-time buyer. Transitional rules may apply where contracts were exchanged prior to 6 March but completed or substantially performed afterwards.
Scotland and Wales
Property purchasers in Scotland and Wales do not pay SDLT. Rather, if you buy a property in Scotland you pay Land and Buildings Transaction Tax, and in Wales you pay Land Transaction Tax. No amendments to these transaction taxes have been announced.
Alcohol and fuel duties
In Budget news, the government has confirmed that alcohol duty will remain frozen until 1 February 2025 and that the previous 5p per litre cut in fuel duty will remain in place until March 2025.
Charities and Gift Aid
In anticipation of enhanced protections for consumers who take out subscription contracts, the government will soon introduce rules to ensure that charities which operate subscription models can continue to claim Gift Aid on those subscriptions.
In conclusion
As we move into 2024/25, there are a lot of tax changes on the horizon, with more likely to come alongside the general election. Where the government gives with one hand (e.g. NIC cuts for workers) they may take with the other hand (e.g. frozen income tax thresholds) and it can be hard to keep up.
We are here to work alongside you and help you prosper so please do get in touch at any time.
Diary of main tax events February/March 2024
Date | What’s Due |
1 February | Corporation tax for year to 30/4/2023 unless quarterly instalments apply. |
19 February | PAYE & NIC deductions, and CIS return and tax, for month to 5/2/24 (due 22/2 if you pay electronically). |
29 February | 5% penalty imposed on 2022/23 income tax, CGT, class 2 and 4 NIC still unpaid at this date unless a payment plan has been agreed with HMRC |
1 March | Corporation tax payment for year to 31/5/23 (unless quarterly instalments apply) |
19 March | PAYE & NIC deductions, and CIS return and tax, for month to 5/03/24 (due 22/03 if you pay electronically) |
Don’t be late paying your personal tax bill
2022/23 income tax, CGT, class 2 and 4 NIC liabilities should have been paid by 31 January 2024 unless you have agreed a payment plan with HMRC. Note that if the balance is still unpaid at the end of February 2024, a 5% surcharge penalty is added in addition to the normal interest charge unless a payment plan has been agreed.
Get ready for more R&D changes
On top of the major changes to research and development (R&D) tax relief that took effect from 1 April 2023, there are yet more changes that take effect from 1 April 2024.
The main change from 1 April 2024 is that most companies carrying out qualifying R&D will be entitled to a 20% expenditure credit. The 20% is calculated on the amount of qualifying expenditure. Qualifying expenditure is extended to include subsidised expenditure from 1 April 2024, although R&D carried out overseas will no longer qualify unless the work cannot be undertaken in the UK.
“R&D intensive” companies that make trading losses will continue to be entitled to a tax refund instead of the expenditure credit. The definition of “R&D intensive” is reduced from 40% to 30% from 1 April 2024, which means a company that spends at least 30% of total expenditure on qualifying R&D.
R&D tax relief continues to be a complex area and we can work with you to help you prepare a valid claim.
Year end tax planning
It’s not too late to undertake some end of year tax planning. If you have some spare cash, an obvious tax planning point would be to maximise your ISA allowances for the 2023/24 tax year (currently £20,000 each). You might also want to consider increasing your pension savings before 5 April 2024.
Use a Lifetime ISA (LISA) to save for your first home
Those aged between 18 and 40 can set up a Lifetime ISA (Individual Savings Account) to buy their first home or save for later life. You can put in up to £4,000 each year until you’re 50. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year. Note that the Lifetime ISA limit of £4,000 counts towards your £20,000 annual ISA limit.
You can withdraw money from your ISA if you’re:
• buying your first home,
• aged 60 or over, or
• terminally ill, with less than 12 months to live.
However, you’ll pay a withdrawal charge of 25% if you withdraw cash or assets for any other reason (an unauthorised withdrawal). This recovers the government bonus you received on your original savings.
Pension planning
Under the current rules, the government adds to your pension contributions at the 20% basic rate. For instance, if you save £4,000 in a personal pension, the government tops this up to £5,000. If you are a higher rate taxpayer there is a further £1,000 tax relief when your tax liability is calculated, reducing the net cost to £3,000.
Additional pension contributions can be even more effective if your income is between £100,000 and £125,140 as the gross pension contribution reduces net income for the purposes of the reduction in the personal allowance. Note that for every £2 of income in excess of £100,000, the £12,570 personal allowance is reduced by £1, with reduction to nil where net income is £125,140 or more. This is effectively a 60% tax saving.
Capital Gains Tax planning
You might wish to consider bringing forward capital gains to before 6 April 2024 where you haven’t used your £6,000 CGT annual exemption. This exempt amount reduces to just £3,000 for gains made in 2024/25.
Capital expenditure planning
Unless the business year end is 31 March or 5 April, the end of the tax year is not a significant date as far as capital allowances are concerned. In order for new equipment to attract capital allowances, the expenditure must be incurred on or before the end of the accounting period. Limited companies buying new (not second hand) equipment are entitled to fully expense the cost of most acquisitions against business profits. There is no financial limit on expenditure qualifying for this “full expensing” relief.
Unincorporated businesses are entitled to 100% write off for the first £1 million spent on new and used equipment in a 12 month period. This “annual investment allowance” (AIA) is also available to limited companies buying second hand equipment. The AIA does not apply to motor cars but there is a special 100% tax relief if you buy a new zero-emissions motor car.
Where equipment is bought under a hire purchase contract, the capital allowances outlined above are available on the full cost of the asset provided it has been brought into use by the end of the accounting period. This is despite the fact that the payments may be spread over a number of months.
Diary of main tax events January/ February 2024
Date | What’s Due |
1 January | Corporation tax for year to 31/3/2023 unless quarterly instalments apply. |
19 January | PAYE & NIC deductions, and CIS return and tax, for month to 5/1/24 (due 22/1 if you pay electronically). |
31 January | Deadline for filing 2022/23 self-assessment tax return online, paying your outstanding tax for 2022/23 and first payment on account of 2023/24 tax. |
1 February | Corporation tax for year to 30/4/2023 unless quarterly instalments apply. |
19 February | PAYE & NIC deductions, and CIS return and tax, for month to 5/2/24 (due 22/2 if you pay electronically). |
Advisory fuel rate for company cars
The table below sets out the HMRC advisory fuel rates from 1 December 2023. These are the suggested reimbursement rates for employees’ private mileage using their company car.
Where the employer does not pay for any fuel for the company car, these are the amounts that can be reimbursed in respect of business journeys without the amount being taxable on the employee.
Engine Size | Petrol | Diesel | LPG |
1400cc or less | 14p
(13p) |
10p | |
1600cc or less | 13p
(12p) |
||
1401cc to 2000cc | 16p | 12p | |
1601 to 2000cc | 15p
(14p)
|
||
Over 2000cc | 26p
(25p) |
20p
(19p) |
18p
(19p) |
Where there has been a change the previous rate is shown in brackets.
You can also continue to use the previous rates for up to 1 month from the date the new rates apply.
Note that for hybrid cars you must use the petrol or diesel rate.
For fully electric vehicles the rate is 9p (10p) per mile.
Update payroll software for the January NIC cut
The chancellor’s announcement of a 2% cut in national insurance contributions (NICs) for employees applies to payments on or after 6 January 2024. That doesn’t allow much time to update payroll software, particularly with the Christmas holidays in between. Note that for employees other than directors, NIC is not calculated on a cumulative basis so, where over-deductions are made, the error is not automatically corrected in later months.
New year resolutions to save tax
At this time of year, we think about New Year’s resolutions. It is also a good time to start planning your tax affairs before the end of the tax year on 5th April.
An obvious tax planning point would be to maximise your ISA allowances for the 2023/24 tax year (currently £20,000 each). You might also want to consider increasing your pension savings before 5 April 2024, as the unused annual pension allowance from 2020/21 lapses after three years.
Many of us get together with the family at Christmas and that prompts us to think about making or updating our Will.
Time to review, or make a will?
At the top of the New Year to do list for many individuals is to make or update their Will. Many think this is something to leave until later in life, but it is important to get things in place once property is acquired or when children come along.
In the absence of a will there are statutory rules which dictate how your assets are distributed on death. Those statutory intestacy rules may not be tax efficient, and you might to want to make specific provision in your Will for your unmarried partner or for the guardianship of your children.
People often think that if they die without making a Will, their spouse (or civil partner) will automatically inherit everything, but this is not necessarily the case. According to the laws of intestacy in England, for deaths occurring on or after 26 July 2023, the surviving spouse would inherit a statutory legacy of £322,000, all of the personal effects, and half of the remaining estate. The deceased’s surviving children (or their descendants) would split the remaining half of the estate equally. If those descendants are under the age of 18, their inheritance is kept back for them until they turn 18. Note that intestacy rules are different in Scotland, Wales and Northern Ireland.
Passing on the family home
When considering the wording of your Will, you should note that the inheritance tax (IHT) nil rate band continues to be frozen at £325,000, subject to any announcements in the Spring Budget. There is currently an additional nil rate band of up to £175,000 for passing on the family home to direct descendants on death. We can work with your solicitor to make sure your Will is tax efficient.
Where some of the nil bands are unused on the death of the first spouse, the balance is available on the death of the surviving spouse, potentially allowing a married couple (or civil partners) to pass on assets of up to £1 million at today’s rates without paying IHT.
The residence nil band is even available when you downsize to a cheaper property. For example, if a married couple currently live in a large house worth £500,000 and downsize to a flat worth £300,000, they could give away some of the proceeds during their lifetime and yet still benefit from inheritance tax relief based on the higher valued property. They could even sell the house and move into a rental property or a care home and still benefit from this nil band.
Leaving money in your will to charity
If you leave at least 10% of your estate to charity, the rate of Inheritance tax on the amount chargeable Is reduced from 40% over the nil rate bands to just 36%. This would reduce the amount passing to other beneficiaries and needs to be carefully considered.
Year end inheritance tax planning
Many were expecting an announcement from the Chancellor in the Autumn Statement about cuts to, or the possible abolition of, inheritance tax (IHT). Maybe he is saving that for his Spring Budget, but in the meantime, it may be worth utilising the £3,000 gifts annual exemption for 2023/24 and, if available, the unused amount from 2022/23. Note that £3,000 is the overall exemption for the tax year, not the amount for each done. More generous amounts can be given away by taking advantage of the exemption for regular gifts out of income.
Regular gifts out of your income can save IHT
One tax planning opportunity that many thought the chancellor might restrict was the exemption from inheritance tax for regular gifts out of an individual’s surplus income. Inheritance tax is designed to tax transfers of capital, so if the donor can demonstrate that the gifts are made out of surplus income then the transfers are not taken into consideration for IHT. The exemption applies where there is a regularity to the payments, such as a standing order to pay school fees or pension contributions on behalf of children or grandchildren. HMRC will also require proof that the payments are paid out of post-tax income and do not limit the donor’s normal lifestyle. Detailed records are required, and we can help you with a suitable spreadsheet.
Pension contributions on behalf of others
Normally an individual’s payments into a pension scheme are limited to their relevant earnings in a given tax year. This restriction does not apply where the contributions are less than £3,600 gross, allowing parents and grandparents to make payments on behalf of children and grandchildren with limited income. Payments of £2,880 a year would attract a 25% uplift from the government which could grow to a substantial amount by the time the child reaches retirement age (currently age 55, but increasing to 57 in 2028). The parent or grandparent may be able to justify that the payments qualify for the regular gifts out of income exemption from inheritance tax mentioned above if a standing order was set up for no more than £240 a month.
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