National Insurance
From 6 April 2024 the main band (£12,576 - £50,268 per annum) of employee national insurance is being reduced by 2% from 12% to 10%. For the self employed class 4 national insurance will be reduced, also by 2%, from 8% to 6%.
Tax tip
This measure, combined with the current high rates of corporation tax, and the reduction in the dividend allowance to £500 means that for many owner managed companies, remuneration through a salary is more attractive than dividends. For example,
£250,000 gross paid out as dividends costs £81,745 in income tax, with net take home of £168,254.
£250,000 paid out as a salary costs £34,500 in employer's national insurance, £6,758. in employee national insurance, £98,703 in income tax; but saves £71,125 in corporation tax for the most profitable companies; so the net take home is £181,164.
Tax tip
Self employment or partnership is now an attractive option for many micro businesses from a tax efficiency point of view compared to small company ownership.
Tax tip
There is a small incentive for the self employed earning less than £50,000 to put off work until after 6 April when the national insurance rate on profits will be lower.
Changes to Foreign Domicile Rules
There are some complex changes to the taxation of non UK income for people from abroad who come to the UK.
From 6 April 2025 those coming to the UK can bring their foreign earnings or capital gains tax free into the country for the first 4 tax years of UK residency. These individuals will have to pay tax on UK sourced earnings.
This regime will be available to existing residents who have been non resident for less than 4 tax years at 6 April 2025.
A simplified Overseas Workday Relief will be available to employees in the first 3 tax years of UK residency regardless of whether income is remitted to the UK or held overseas.
There is a one-off reduction of 50% on the remittance of any foreign income to the UK in 2025/26 for existing remittance basis users.
Existing foreign income accumulated at 6 April 2025 will continue to be taxed when remitted to the UK.
Inheritance tax will change from being charged on a domicile basis to a 10 year residency test. UK assets will remain in charge regardless of residency status.
Income and gains on foreign trusts will be taxable on UK resident settlors (apart from the first 4 tax years of UK residence).
Tax tip
For existing non domiciled resident tax payers, a reduced 12% rate of tax will be introduced for remittances to the UK of existing overseas income and gains from abroad to the UK in the tax years 2025-26 and 2026-27.
Residential Property Capital Gains Tax Rate
The higher rate of tax payable by landlords on the sale of residential properties has been reduced down from 28% to 24%.
Tax tip
It could be worth delaying exchange of contracts until after the start of the new tax year.
Higher Income Child Benefit Charge
From 6 April 2024, the threshold at which child benefit has to be repaid in part has been raised by £10,000 to £60,000, which will be welcomed by many middle earnings parents.
The threshold at which the benefit has to be repaid in full has been raised by £20,000 to £80,000, which reduces some of the harsh fiscal cliff edges that applied previously.
Tax tip
Parents who earn equalised amounts can earn a household income of up to £120,000 without repaying any child benefit. Many owner managed businesses can arrange for shareholdings and therefore dividend income to be shared between spouses which reduced the benefits charge, and maximises the use of basic rate bands, personal allowances, dividend allowances. Get in touch if you think you could benefit from this.
Increase in the mandatory VAT Registration Threshold
The modest increase in the maximum turnover before VAT registration becomes mandatory by £5,000 to £90,000 will be welcomed by businesses on the cusp of the registration threshold.
Furnished Holiday Lettings regime
The favourable capital allowances and capital gains regime on FHLs will be withdrawn on 6 April 2025.
Tax tip
Owners of FHLs may wish to bank their entitlement to the 10% Business Asset Disposal Relief or rollover relief on gains of the sale of their properties before 5 April 2025