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Why you could be paying more tax in 2024

Behind the excitement of tax cuts in the autumn statement, there are still reasons you might end up paying more tax than you expect in 2024.

Important information - This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

After the National Insurance cut announced in the autumn statement, you’d be forgiven for thinking you’ll be paying less tax in 2024. But there’s still every chance that, you’ll be paying more. Despite the cut, there are still some sneaky tax rises you could fall prey to.

This article isn’t personal advice. Investments can fall as well as rise in value, so you could get back less than you invest. If you’re not sure what’s right for your circumstances, ask for financial advice.

Pension, ISA and tax rules can change, and benefits depend on individual circumstances.

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More tax on pay

The National Insurance (NI) cut does mean some people will face less tax on pay. But an awful lot of people could still be paying more in tax, including those who’ll be dragged across a higher income tax threshold by the freeze on those thresholds. By the time these unfreeze, it’s expected nearly four million more people will be paying income tax.Some people on higher incomes will also be paying more tax next year, including those whose pay rises have taken them over the higher-rate tax threshold.

More tax on investments

The dividend allowance falls in April from £1,000 to £500 – after being cut from £2,000 just a year earlier. This will be a real blow to investors earning dividends outside of tax saving products such as ISAs.

They might also be left reeling from the annual capital gains tax allowance dropping to £3,000 from April – down from £12,300 two years ago. Having invested carefully for the long term to build financial resilience, this is going to feel particularly upsetting for some people.

More inheritance tax

The inheritance tax (IHT) nil rate band will stay at £325,000 and the residence nil rate band at £175,000 in the next tax year. Meanwhile, the IHT annual tax gift allowance is spending its fourth decade at £3,000.

How you could cut your tax bill

1

ISAs

The government offers the chance to shelter up to £20,000 from UK income and capital gains tax each tax year in ISAs. It doesn’t just shelter you from the tax grab right now, but also shelters you from more tightening that might be in store in the next few years.

If you‘re aged 39 or under, you can also open a Lifetime ISA (LISA). In a LISA you can use up to £4,000 of your ISA allowance per tax year and receive a 25% bonus from the government (up to £1,000).

You can access the money in your LISA early if you need to, but this does come with a 25% penalty if it’s not used for a first-time home or after you turn 60. So, you could get back less than you put in. Be aware, savings outside a pension (like in a LISA) could affect your entitlement to means-tested state benefits.

You could also save up to £9,000 per tax year in a Junior ISA for any qualifying child.

2

Pensions

Most people under 75, can make personal contributions of up to £60,000 and benefit from basic-rate tax relief. If you pay tax at a higher rate you can claim back any higher rates of relief via your tax return.

Tax relief on personal contributions is limited by your earnings (or £3,600, if this is greater) and you have to pay sufficient tax at the higher rates to benefit from that relief.

Once you reach the age where you can access your pension (currently 55, increasing to 57 from 2028), you can usually take up to 25% from your pension tax-free. In some pension schemes, you can sacrifice part of your salary and exchange it for a pension contribution – so you save both tax and National Insurance.

3

Spouse exemptions

If you’ve already used your allowances but have additional income producing assets or assets with capital gains, they can generally be passed between spouses (or civil partners) without triggering a tax bill. So, both individuals can make use of their respective allowances and potentially reduce their total tax bill.

This means more estates will likely have IHT to pay. This tends to be seen as a wealthy person’s tax, but with booming house prices over recent years and threshold freezes, this might not be the case any longer.

Not sure what the autumn statement means for you?

If you need help or support understanding how the autumn statement impacts you, or what you can do about it, a financial adviser could help.

They can review any existing financial plans you have in place, or create a new one unique to your circumstances, to help you prepare for a better future.

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Written by
Sarah Coles
Sarah Coles
Head of Personal Finance

Sarah provides insight and analysis to the media on topics such as savings and financial planning, and co-presents HL's ‘Switch Your Money On' podcast.

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Article history
Published: 11th December 2023