The 2024 Budget introduced significant changes aimed at addressing economic challenges while balancing the needs of employees, property investors, and individual taxpayers. These updates come with new opportunities for tax planning but also heightened complexity, especially for those impacted by shifts in Capital Gains Tax (CGT).
Let’s explore how these changes affect various groups and what actions you can take to stay ahead.
1. Key Updates for Employees
Employees saw relatively few changes in this Budget, but some critical points stand out:
- Income Tax Freeze Continues: Personal allowance and the higher-rate tax threshold remain frozen until 2028.
- Salary Sacrifice Schemes: Increased incentives for green initiatives, such as electric vehicle salary sacrifice schemes.
- National Insurance Contributions (NICs): No rate increases, but thresholds remain unchanged, creating a stealth tax effect as wages rise.
What This Means for Employees:
The freeze on thresholds means more workers may find themselves moving into higher tax brackets. Salary sacrifice schemes and workplace benefits, such as pensions, remain effective tools for reducing taxable income.
2. Property Investors Face Ongoing Pressure
The property sector continues to grapple with high tax burdens:
- Mortgage Interest Relief: No new reliefs for buy-to-let landlords, keeping existing restrictions in place.
- Capital Gains Tax on Property Sales: CGT rates remain aligned with other assets, but the reduced annual exemption allowance of £3,000 significantly impacts gains on property disposals.
What This Means for Property Investors:
For those looking to sell properties, planning ahead to spread gains across multiple tax years or offset losses is essential. For landlords, reviewing holding structures such as Special Purpose Vehicles (SPVs) may provide long-term tax benefits.
3. Capital Gains Tax (CGT) Changes
CGT continues to be a focal point in this year’s Budget:
- Reduced Exemption Allowance: The CGT tax-free allowance has dropped from £6,000 to £3,000, limiting the amount of gain exempt from tax.
- Higher Rates for High Earners: CGT rates for higher-rate taxpayers have increased, bringing them closer to income tax levels.
What This Means for Taxpayers:
For individuals selling shares or other investments, the reduced exemption and higher rates could significantly increase liabilities. Using strategies such as gifting assets, transferring them to a spouse, or leveraging ISAs remains key to minimising exposure.
Case Study: CGT Planning for Property Investors
James, a higher-rate taxpayer, sold a rental property in 2024 for a £100,000 gain. With the reduced allowance, his taxable gain increased to £97,000, resulting in a CGT liability of £27,125.
After consulting COPA Accounting, James adopted these strategies:
- Offset gains with losses from another property sale, reducing his taxable gain by £15,000.
- Transferred a portion of the property ownership to his spouse before the sale, doubling their combined CGT allowance.
These steps reduced his overall tax bill, demonstrating the importance of planning.
4. Opportunities for Proactive Tax Planning
Despite challenges, the Budget offers opportunities to optimise your tax position:
- Leverage ISAs: Investments in ISAs remain exempt from CGT, providing a tax-free growth vehicle.
- Explore Salary Sacrifice Schemes: Reduce taxable income by contributing to pensions or leasing electric vehicles.
- Use R&D Tax Credits: For business owners, enhanced R&D credits can offset tax liabilities and support growth.
- Consider SPVs for Property: Holding property in an SPV may offer long-term tax savings and operational efficiencies.
How COPA Accounting Can Help
At COPA Accounting, we understand the complexities of navigating tax changes. Our expertise in tax planning ensures that our clients make the most of allowances and reliefs while staying compliant.
Here’s how we can support you:
- CGT Planning
- Minimise liabilities with tailored strategies, including gifting, offsetting losses, and spreading gains.
- Property Tax Advice
- From buy-to-let tax management to SPV setup, we optimise tax positions for landlords and investors.
- Salary Optimisation for Employees
- Explore workplace benefits and salary sacrifice schemes to reduce taxable income.
- Business Growth Support
- Leverage R&D credits and other incentives to fund innovation and expansion.
Conclusion
The 2024 Budget presents both challenges and opportunities for employees, property investors, and taxpayers affected by CGT. Proactive planning is essential to mitigate risks, optimise tax positions, and capitalise on available reliefs.
At COPA Accounting, we’re committed to helping you navigate these changes with confidence. Contact us today to explore tailored solutions for your needs.
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