Welcome to the new tax year!

changes for the new tax year 2024 2025

Content accurate as of 08 April 2024

As we embark on a new tax year, we have set out below important upcoming changes that you need to consider including the level at which to set your salary, the High Income Child Benefit Charge and the abolition of the Furnished Holiday Lettings regime.

Company Directors – Setting the best level for your salary for 2024/25

As the tax bands have not changed, generally speaking, for the majority of clients it is still beneficial to set your salary at £12,570 gross per annum (£1,047.50 a month).

As this is the same as last year, a great number of people will not need to change anything.

If your only income is from your company, there will be no tax or NIC deducted from this, but there will be employers’ NIC due towards the end of the tax year totalling £478.86. However, it is better to pay this NIC at 13.8% rather than corporation tax at 19/25%, so there is a small tax saving here. In addition, you may be eligible to claim employment allowance (see below), reducing your overall liabilities further.

For a small minority of you, it may be better to take a lower salary of £9,100 and pay no employers’ NIC, for example, if you earn income outside of the company and are not eligible for the employers’ allowance or your company is loss-making. If you feel this may apply to you and wish to discuss your particular circumstances with us, please let us know.

In most cases, you should set your monthly 2024/25 salary at £1,047.50/month.

We will process your 2024/25 payroll at the levels indicated above. When you receive the April payslips, please check that these agree to the payments you are making, and if not, let us know of any discrepancies so they can be adjusted.

Employment allowance

If you are eligible, you may be able to claim employers’ allowance reducing your company’s payroll taxes further. Please use this link to check you are eligible.

Pension qualifying payments

As long as your annual salary exceeds the lower earnings limit of £6,396, the year will count as a qualifying year for your future state pension, even if there is no NIC payable.

Dividend Tax

In most cases, your salary will be £1,047.50 per month; you can then take £500 of dividends per annum tax-free. There is then tax payable at 8.75% on the next £37,200 of dividends per annum, after which the dividend tax rate then increases to 33.75%.

If you have other income, this will reduce the amount of dividend income taxed at 8.75%. The 33.75% band continues until your total income reaches £100k then the rate of tax rises again as you start to lose your personal allowance at this level.

Tax tips to consider

  • If you have not already, you may want to transfer some shares to your spouse to reduce the overall rate of tax on dividends.
  • If you are the sole director/employee and take on another employee, you should inform us as you may then claim the employment allowance to mitigate the employers’ NIC liability.
  • If your total income is between £100-£125k, you could consider making additional pension contributions to mitigate this, as taxation in this range of income can be as high as around 60%, depending on your type of income.

High-Income Child Benefit Charge (HICBC)

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.

2024/252023/24
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 based on total household income rather than the income of the highest earner in the household by April 2026.

Considerations

  • It may be that your income was over the old threshold, so you opted out of Child Benefit, but your income is now below or between the new limits, so you or your partner may need to consider opting back into receiving Child Benefit again.
  • An advantage of receiving Child Benefit may be that your partner is not currently working, if they receive Child Benefit this will qualify them for a year of ‘contributions’ towards their state pension, even if it some or all then needs to be ‘paid back’ via the HICBC.
  • It is important to note that you should still sign up for Child Benefit, even if you then opt out due to high earnings, as this is needed to give your child a National Insurance number when they reach 16 years of age.

Tax regime for Furnished Holiday Lets (FHL)

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. In particular, tax relief on any mortgage interest will be restricted to 20% of the interest on FHLs.

Abolishing the FHL regime will see the end of the availability of Business Asset Disposal Relief (BADR). So, the 10% Capital Gains Tax (CGT) rate will also no longer be available on the sale of the property. The CGT rates for the sale of UK land & buildings will now apply. For basic rate taxpayers, this will be 18% and 24%* for higher rate taxpayers (*4% reduction in rate announced in Spring 2024 Budget).

The government has also introduced an anti-forestalling rule to prevent gaining a tax advantage through the use of unconditional contracts to obtain capital gains relief under the current FHL rules, though draft legislation for this has not yet been published. This rule will apply from 6 March 2024.

There are still a lot of unknowns about the changes to FHLs; it is expected that there may be transitional rules, but there is no guidance at the moment from the Government.

What should you do?

We recommend keeping an eye out for the guidance and anti-forestalling draft when it is released.

If you then wish to discuss the future of your FHL with us, please do get in touch.

Disclaimer

The information provided above has been written after the Spring Budget 2024 and is subject to change. There are expected to be further announcements in an Autumn Budget, and if there is a change in government after the next general election, there may be further budget announcements as a result of that. This newsletter contains general advice and is not intended as legal advice. Please contact us for specific tax planning advice.

Content accurate as of 08 April 2024

Picture of Lizzie Stevens BSc ACCA
Lizzie Stevens BSc ACCA
Lizzie Stevens is a Chartered Certified Accountant. Visit the Treetops website for more information.
About Treetops

Treetops is an established Chartered Accounting firm based in Farnborough, Hampshire. We have clients locally and nationally. For advice and a free consultation please contact us.

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