The tax and pension landscape is changing in 2024. Wealth Manager, Michael Stowe looks at what investors and savers need to do to maximise their tax and investment position this year.

This year we can expect some significant changes to the financial landscape, not least due to the announcements around tax and pensions made in both the 2023 March Budget and the Autumn Statement.

How Lowes clients will be impacted will depend on individual circumstances, but nearly everyone will be affected in some way. Here are the major changes of which to be aware.

Changes affecting investing

Standard and sound advice when building our wealth is to ensure that we take full advantage of the tax allowances and exemptions that we have available to us.

The ISA allowance of £20,000 a year is the first that springs to mind. Money invested into an ISA is free of income tax and capital gains tax - although it does form part of the estate for
inheritance tax purposes.

Currently, savers have a total allowance of up to £20,000 per year. This can be placed into a cash ISA and/or a stocks and shares ISA, but not more than one of each. The Lifetime ISA has a £4,000 limit per annum.

From April, this changes. Savers will be able to subscribe to multiple ISAs of the same type and will be allowed to partially transfer funds between different providers. This can help with diversifying portfolios, particularly for stocks and shares ISAs.

In the Autumn Statement the Chancellor announced the intention to enable fractional share ownership within the ISA wrapper. Currently, HMRC only allows investors to hold a full share within an ISA. But with some shares costing several hundred or even thousands of pounds to own, the opportunity to invest in fractions of shares opens the doors for investors to benefit from the growth of a wider range of companies. No date for the change has been announced as yet.

However, direct share ownership comes with its own risks of course, and ownership has to be managed, such as knowing when to buy and sell a share.

We would advise investors to continue to invest via mutual funds, managed by professionals. The advantages are that mutual funds have thousands or more investors’ money to invest, meaning funds are able to access these higher cost shares as a matter of course; the fund managers’ job is finding the best companies to invest in; and they have team of researchers to help them make their decisions.

If you have money to invest and have not used all your ISA allowance for the 2023-2024 tax year, make sure you invest by 5th April. Consider also, investing as early as you can in the 2024-25 tax year, rather than waiting until the end of the tax year. Earlier investment into an ISA can boost your overall returns in the long run.

Changes to pensions

One of the most significant changes to affect pensions has been the Chancellor’s announcement that the Lifetime Allowance (LTA), the amount that anyone can save into a pension in their lifetime, will be abolished from April 2024.

The lifetime allowance was £1,073,100, with the maximum amount of pensions tax-free cash someone can build up in their lifetime usually limited to 25% of this – £268,275. If any payments were made above this lifetime allowance and then withdrawn, they were taxed by HMRC at either 25% if taken as income, or 55% if taken as a lump sum.

The lifetime allowance will be fully removed from the pension tax rules from 6th April. This means people can continue to pay into their pension – subject to the annual allowance (see
below) – without fear of facing potentially large tax bills in the future. However, the maximum tax free lump sum will remain at £268,275.

It also means individuals will be able to take as much income as they want from their pension, although they will still be subject to income tax, and checks will only be made on lump sums taken.

Two main new allowances are being created to facilitate this:

• An individual ‘lump sum allowance’ set at £268,275 (25%
of the current £1,073,100 lifetime allowance) – measuring
the tax-free cash taken over someone’s lifetime.

• An individual ‘lump sum and death benefit allowance’ set
at £1,073,100 – which will include any tax-free lump sums
someone takes while alive, plus any serious ill health
lump sum and lump sums paid out when they die.

There will be a third allowance – an overseas transfer allowance – also set at £1,073,100, measuring the value of pension benefits transferred to overseas pension schemes. Anyone who exceeds any of these allowances will see the excess taxed in the same way as income.

Annual allowance

In the 2023 Budget, the maximum amount anyone could save into a pension was increased from £40,000 to £60,000. Pensions offer significant tax advantages, firstly in that tax relief is given on cash paid in at the individual’s marginal rate of tax; secondly, pensions fall outside a person’s estate for inheritance tax purposes; and thirdly, pensions can be passed on to beneficiaries on death, either tax free or at the marginal rate of tax.

In addition, any unused annual allowance from the previous three years can be carried forward. This means as much as £180,000 can be paid into a pension on or before 5th April 2024. If the individual has enough taxable earnings and remaining allowance available.

A further change affecting the 2023-24 tax year, was the increase in the Money Purchase Annual Allowance. This restricted the amount that could be paid into a pension if the pension holder had withdrawn money from the pension. This was affecting people who had accessed their pension during the Covid pandemic or in the cost of living crisis and wanted to start paying back into their pension.

The limit had been £4,000 but was increased to £10,000. Anyone who has accessed a pension and now wants to put money back in before the end of the tax year, can do so to that limit of £10,000.

Good tax planning will always include maximising pensions contributions.

Tax changes

Two tax changes to highlight before the end of the tax year are in respect of dividend tax and capital gains tax.

From 6th April, the dividend allowance, the amount an individual can keep free of tax from dividend payments is reducing from £1,000 to £500. This will affect anyone with taxable dividend income above £500, who will pay 8.75% if a basic rate taxpayer, 33.75% if a higher rate taxpayer and 39.35% if an additional rate taxpayer.

The capital gains tax allowance is also being cut from 6th April 2024. This will halve the exemption from the current £6,000 to £3,000. Basic rate taxpayers pay 10% on eligible gains except for residential property which is charged at 18% (that is not their own home); higher and additional rate taxpayers pay 20% and 28% on residential property.

If you have considerable assets you wish to dispose of which will attract CGT, it could be worthwhile selling them before the end of the tax year to benefit from the current £6,000 exemption rate.

Finally, many tax reliefs/allowances have been frozen, which means more people will start to be drawn into paying more or higher rates of tax. This particularly affects income tax – it is
estimated that as a result of the freezing of income tax rates, another three million more people will be paying higher rate tax by 2029.

HMRC’s tax take from inheritance tax keeps on rising, netting the Treasury around £158 million a week.

collected from inheritance tax receipts in the first seven months of the year – £0.5 billion higher than the same period in 2022. But the inheritance tax nil rate band and residential
nil rate band are now frozen until at least April 2028, which will draw even more people into the inheritance tax spotlight.

It is ever more important, therefore, that careful estate planning is put in place to mitigate against unnecessary inheritance tax payments.

If you are affected by any of these issues, your Lowes Adviser can help. Call us on 0191 281 8811 and we will arrange for an Adviser to contact you.

Lowes Financial Management is authorised and regulated by the Financial Conduct Authority.