Laura Suter, director of personal finance at AJ Bell, looks at 13 personal finance changes coming in April and highlights what people can do to prepare. These changes include:
- ISA reforms
- Capital Gains Tax allowance cut
- Capital Gains Tax rates reduced for higher earners with second properties
- Dividend allowance cut
- Pension lifetime allowance abolished
- Child benefit extended
- Free childcare hours extended
- National Insurance cut again
- National Minimum Wage increase
- State pension increase
- Mobile, broadband and TV bills increase
- Council tax rise
- Energy bills drop
“The new tax year often brings a raft of changes that impact people’s pay, investments and savings – and this year is no different. But the Spring Budget also introduced some new rules to some benefits and a boost for parents. At the same time, April is often the month that some providers hike their bills by above-inflation amounts. Here we list the big changes affecting people’s finances from next month.”
“There are some big changes to ISAs coming in from April, and while savers and investors will see the benefit of them, some are quite technical and fiddly. Firstly, you will be able to pay into more than one of the same type of ISA each year, for investment and cash ISAs. It means that you can pay money into one cash ISA and then later in the tax year spy a better interest rate and open another cash ISA for more of your money. You can’t do this for Lifetime ISAs or Junior ISAs and you still need to make sure you don’t pay more than the £20,000 allowance into your ISA each tax year – across all your accounts.
“Another change is that you may be able to transfer as much (or as little) as you want between different ISA providers. Right now, if you want to transfer cash and investments bought with money you paid in this year, you will have to move it all at once – but that may be a thing of the past from April. You will also not have to reapply for ISAs you already have open. Currently an ISA is classed as ‘dormant’ if no money has been paid in into it for a whole tax year, meaning you might be asked to reapply – but from April this red tape will be scrapped.
“From April you will also be able to invest in long term asset funds (LTAFs) and open-ended property funds with redemption periods in the Innovative Finance ISA. HMRC figures show that this type of ISA made up only 0.13% of the ISAs paid into last year, so this new home for these unloved property funds looks little more than a marriage of convenience.
“The age for opening Cash ISAs is also changing, going up from 16 to 18 – bringing it in line with other types of ISA. But in practice, the rules mean the increase only affects anyone aged 15 and under at tax year end, with 16 and 17-year-olds (as at 5 April), still able to open and pay into a Cash ISA if they haven’t already.”
“From April the tax-free allowance for capital gains tax (CGT) will be cut in half, from the current £6,000 down to just £3,000. It means the tax-free amount will be less than a quarter of what it was just over a year ago – and will lead to bigger tax bills for those sitting on gains.
“More than a quarter of a million more individuals and trusts will be paying capital gains tax for the first time thanks to the government’s crackdown on gains over the past two tax years*. It means someone with investment gains at the current limit of £6,000 will pay an extra £300 in tax in the 2024/25 tax year if they are a basic-rate taxpayer, or £600 if they are higher or additional rate taxpayers. The increase will be higher for those with gains on second properties, as they pay a higher rate of capital gains tax.”
*The changes to CGT mean that 260,000 more individuals and trusts will be paying CGT for the first time by 2024/25, according to HMRC figures.
“From the new tax year the highest rate of capital gains tax will be cut. While the normal rates of capital gains tax are 10% and 20%, there is a higher rate for those who are selling a second property, of 18% for basic-rate taxpayers and 28% for higher-rate taxpayers. This means landlords who are selling up face a higher rate of tax on their gains, as well as having seen the tax-free amount slashed over the past few years.
“But it was announced in the Spring Budget that the top rate of 28% will be cut to 24% from 6 April this year, to give a tax break for someone selling up. The lower rate of 18% remains unchanged. It means a higher-rate taxpayer with a £100,000 gain on their property will pay £3,880 less in tax next year than they otherwise would have, while someone with a £50,000 gain will pay £1,880 less in tax.”
“The crackdown on dividend tax has already led to higher tax bills for investors and company directors, but the move to cut the tax-free dividend allowance in half from £1,000 to £500 from 6 April will cast the tax net even wider. The cut will mean that from April an additional rate taxpayer who has more than £1,000 of dividends will pay £197 a year more in tax than this tax year, while a basic-rate taxpayer will face an extra £44 on their annual tax bill.
“These changes are on top of the cuts made in April 2023, bringing the dividend tax-free allowance to a quarter of what it was in March 2023. In total the changes will cost an additional-tax payer £590 a year more, or £506 a year for a higher-rate taxpayer. This tax only applies to investments outside a pension or ISA, so moving your money into one of these tax-free accounts is your best way to reduce your tax bill. You can always transfer some assets to your spouse to make use of their tax-free and ISA allowances too.”
“From April we will be saying goodbye to the pension lifetime allowance, over one year after Chancellor Jeremy Hunt announced the plans at last year’s Spring Budget. For the past twelve months, pension providers, financial advisers and pension savers have been grappling with the details of the government’s new pension tax regime. But these rules are far from simple, and with the impending changes now just around the corner it’s important to understand what the new system will look like for pension savers come 6 April.
“The lifetime allowance, currently set at an awkward £1,073,100, will be abolished completely next month. Instead, two new main allowances will be introduced for savers to contend with – the lump sum allowance and the lump sum and death benefit allowance – as well as a third relating to overseas transfers. The lump sum allowance, or the tax-free lump sum limit people can take from their pension, will be set at £268,275, and the lump sum and death benefit allowance will be set at £1,073,100.
“These allowances are designed to limit the pension tax-free lump sums people can receive during their lives and the tax-free lump sums they can pass onto beneficiaries when they die. Where previously pension withdrawals exceeding the lifetime allowance could be subject to a lifetime allowance tax charge, savers can now take as much income as they want from their retirement pot, with just income tax to pay on pension withdrawals. On top of this, the new rules will also present some pension planning opportunities, though these would be best explored with help from a regulated financial adviser.”
“The rules around child benefit will change from April, meaning a parent earning between £50,000 and £80,000 could be in for a windfall. The government has made two key changes: first, that the threshold where you start to lose child benefit payments is increasing from £50,000 to £60,000. That means if you earn between £50,000 and £60,000 you should be able to receive more child benefit.
“The second change is that you’ll continue to receive some child benefit up to when you earn £80,000 or more, where previously this cut-off was £60,000. A parent earning £60,000 currently isn’t eligible for any child benefit, but as a result of the changes they will now get the full amount from April. That represents a total of £2,212.60 a year from April for parents of two children – a decent boost for families.
“The catch is that the benefit is based on both parents’ income – meaning if either of you earns more than the thresholds you’ll lose entitlement to the benefit. Families also need to claim the child benefit, they won’t automatically receive it – so anyone who is now eligible needs to fill out some paperwork and do battle with HMRC’s systems.”
“Another benefit for parents from this April is that the free childcare hours are being extended to two-year-olds. Currently most parents only get free hours once their child turns three, but that’s being extended so that parents will get 15 free hours of funding for two-year-olds from 1 April. But it’s another benefit that you need to claim. And the big drawback is that the deadline to get the funding is 31 March, and if you miss that deadline you won’t be able to claim until September this year – so any parents of children born in April 2022 or before need to get moving to hit the deadline.
“There’s no doubt that the scheme will reduce many parents’ nursery bills, but there are catches. The first is that the hours are for term-time only, equating to 38 weeks a year. It means that parents who work the standard 52 weeks of the year will have a 14-week shortfall in the free hours. At the same time, nurseries and childminders often charge extra fees for additional hours, food, nappies or activity costs. This means that while the free hours save parents some money, they rarely provide a free ride for a kid in childcare for 15 hours a week. To be eligible, parents need to be working and both need to earn less than £100,000 a year.”
“Chancellor Jeremy Hunt announced the second cut to National Insurance for 2024 in his Spring Budget. It means the starter rate for National Insurance for employed people, which is charged on the band of earnings between £12,570 and £50,270, will be cut from the current 10% to 8%. But it has dropped from 12% at the end of last year. In good news for employees, the change should happen automatically, with payroll departments across the country implementing the reduction for staff.
“Someone on £15,000 a year will save less than £50 a year on their National Insurance bill as a result of the reduction in April – or double that if you look at the impact of both January and April’s cuts together. Meanwhile someone on £35,000 will save around £450 a year thanks to the most recent cut, while those earning more than £50,270 will save £750 a year from April.
“Self-employed people got a similar two percentage point cut to their National Insurance rate, affecting around two million people. The rate for Class 4 National Insurance will be cut from 8% to 6% from April – having already been in line for a cut from 9%. At the same time the government previously announced it was abolishing Class 2 contributions, which comes into effect from April this year.
“Taking all those changes together it means that a self-employed person on £15,000 a year will save around £250 a year on their National Insurance bill, while someone on £35,000 will save just over £850 a year and someone earning more than £50,270 will save £1,310 a year from April.”
“The minimum wage will see a meaty increase in April – boosting the pay of the lowest earners in the UK. The minimum wage will rise by more than £1 an hour from April, to £11.44 an hour for those aged 21 and over. It’s a pay rise of £1,856 a year for someone working full time on the minimum wage and will take their annual salary to £20,820 a year*. This increase comes off the back of a near-10% increase last year and means that over the space of two years the minimum wage will rise by almost £2 an hour, having been at £9.50 as recently as April 2022.
“Younger earners will benefit even more, as those aged 21 and over will now be eligible for the full rate of minimum wage – where currently they get a reduced rate until they reach the age of 23. It means that a 21-year-old will see the minimum wage rise from £10.18 an hour now to £11.44 an hour from 6 April.
“There are potential downsides to the increase though. While the government sets the rate, it’s businesses around the country that actually pay it, and some may have to push up costs as a result. At the same time there are concerns that it could boost inflation again, as people have more money in their pocket to spend and businesses have to raise prices to afford the higher wage bill.”
*Based on a 35-hour week.
- State pension increases to £11,500 a year
“Retirees will receive an inflation-busting 8.5% boost to their state pension from April that will see the ‘new’ state pension increase to £11,502.40 a year. The triple-lock promises to increase the state pension by the highest of average earnings growth, inflation or 2.5% each year – with earnings growth coming in at 8.5% and providing the measure for the uplift this year.
“It means for those in receipt of the full new state pension, their weekly income will surge from £203.85 per week to £221.20 per week. Those on the ‘old’ state pension (paid to those who reached state pension age before 6 April 2016) will see their weekly income increase from £156.20 per week to £169.50 per week, amounting to £8,814 a year.”
“Lots of people will be surprised by how much their broadband, mobile phone and TV package bills increase by in April. These services typically have price increases baked into the contract that are pegged to the RPI measure of inflation – which is always higher than the standard CPI measure. Because inflation has been high and the increases are RPI plus a bit more, it translates to some pricey increases in bills.
“While the increases won’t be quite as sharp as the double-digit ones seen in 2023, they could still be almost 9% in some cases. For example, O2 will be charging some mobile phone customers an increase of 8.8%, while Virgin Media customers will also see an 8.8% increase to their TV and broadband packages. While these might only equate to a few pounds here and there, if you add up all the changes across the year it can really rack up. You can beat the price hikes by switching provider, as often you’ll get a cheaper deal as a new customer. If you don’t want the hassle of moving you could call your existing provider and haggle down your monthly cost.”
“The majority of councils are increasing their council tax by the maximum amount from April* – meaning people need to be braced for a price hike. The actual increase you’ll see depends on whether your local authority increases rates by the maximum 4.99% or a different sum, and also on what your council tax rate and band is.
“But a 4.99% increase for the average Band D property in the UK would mean it rising from £2,065 a year currently to £2,168 from April – a £103 increase. As council tax is usually paid across 10 months that means an increase of around £10 a month to bills – but those with bigger properties and in more expensive areas for council tax will face bigger hikes.
“Anyone struggling with their bills should check whether they are eligible for extra support or a reduction in bills. You can get a tax break if you are living alone or with children, or if you’re on certain benefits.”
*Based on survey by the County Councils Network.
“The Energy Price Cap will reduce by 12% from April, making energy bills a bit cheaper for many households. It means the price cap for the average household will drop to £1,690 – a fall of almost £240 a year. While £20 a month isn’t a huge drop it will help to absorb some of the bill increases people are seeing elsewhere.
“While the cut means that a typical bill will fall to the lowest level in two years, energy bills are still way above where they were three years ago when the price cap stood at £1,138. One worrying factor for those who are trying to cut costs is that standing charges have increased again, despite the fall in the price cap. That means that even before you’ve used a unit of electricity or gas you’ll have to pay £6.42 a week just to be connected – or £334 a year.”
