Bure Valley Group is an investment introducer platform which links successful investors with exciting, innovative UK startups seeking funding. This content is for information purposes only and should not be taken as financial or investment advice.
A new tax year recently arrived (2024-25), starting on 6 April 2024. The new year ushers a range of important changes to the UK’s tax landscape which have important implications for investors. Below, our team at Bure Valley Group outlines the key changes that investors need to know, how they could affect portfolios and ideas to navigate this shifting landscape with greater confidence and prudence.
We hope you find these insights useful. To learn more about our EIS projects and other early-stage opportunities, visit our portfolio page. For enquiries regarding our latest projects and funding, you can reach us via:
+44 160 334 0827
What has NOT changed
Before diving into the changes, it is useful to consider the static elements of the UK’s tax landscape in 2024-25. One key feature is the continuation of the income tax “freezes” which have been in place since 2021-22. These are expected to remain in place until April 2028.
Many analysts have noted that this amounts to a stealth tax. As workers’ wages rise over the coming years (e.g. wage growth was 5.6% between December 2023 and February 2024), many will find themselves entering a higher tax band, perhaps unwittingly.
Indeed, by 2028-29, the Office for Budget Responsibility (OBR) predicts that 3m more people will be paying the 40% Higher Rate. 4m people will start paying income tax for the first time as their incomes exceed the limits of the tax-free Personal Allowance (£12,570).
Investors should take note. The higher your income tax band, the higher your tax rates on investments such as capital gains and dividends. For instance, capital gains tax (CGT) is 10% on most chargeable assets for a Basic Rate taxpayer. For a Higher Rate taxpayer, it is 20%.
There can be other repercussions to entering a higher income tax rate. In particular, the Personal Savings Allowance (PSA) reduces from £1,000 to £500 if a Basic Rate taxpayer becomes a Higher Rate taxpayer. An Additional Rate taxpayer also sees their Personal Allowance reduced by £1 for every £2 earned over £125,140.
What HAS changed in 2024-25
National Insurance contributions for employees have been cut from 10% to 8% for most employees as of April 2024. For someone earning a £35,000 salary, the government claims this will save £450 per year. Class 4 contributions (e.g. for the self-employed) have fallen to 6%.
For international investors, a key change to note is the planned scrapping of “non-dom status” by April 2025. If you live in the UK but are “domiciled” overseas, then you only pay UK tax on income and investments in the UK. The new rules will require anyone with non-dom status to pay tax on worldwide income and assets after living in the UK for 4 years.
Another key change has been the reduction in tax-free allowances for capital gains and dividends (held outside ISAs). In 2024-25, the Annual Exempt Amount has gone down from £6,000 to £3,000 per year. For dividends, the tax-free allowance is down from £1,000 to £500.
A final significant change to note is the abolition of the Lifetime Allowance for pensions. Here, two new allowance have been introduced to replace the former: the Individual’s Lump Sum Allowance (LSA) and the Individual’s Lump Sum and Death Benefit Allowance (LSBDA). In effect, these limit how much investors can withdraw from their pensions without tax.
Tax planning ideas for investors
The continuing income tax freezes require investors to think carefully about how to structure their income and assets over the coming years. For instance, a company director may wish to rebalance how much income they receive from salary versus dividends. Tax rates on the latter may be lower for the investor compared to those on salary.
A self-employed person may need to more carefully plan their projected cashflow, “spreading out” profits throughout the year instead of excessively “loading” them in a single tax year (which can complicate your Tax on Account situation).
The reduction in the tax-free thresholds for capital gains (the Annual Exempt Amount) and dividends will likely make ISAs even more important as “tax mitigation vehicles” for investors. After all, any interest, capital gains and dividends earned inside ISAs are tax-free. However, there is a £20,000 yearly contribution limit for ISAs. This will be too restrictive for many investors. In which case, other tax planning options may also be necessary.
Here, tax-efficient investment vehicles like the Enterprise Investment Scheme (EIS) could be a useful option. For instance, investors can claim 30% up-front income tax relief on their EIS-qualifying investments. Loss relief is available on EIS shares which are disposed of at a loss and capital gains from non-EIS shares can be invested into EIS-qualifying companies (deferring the CGT liability to a future date – e.g. a tax year when the investor may occupy a lower income tax band).
Invitation
Interested in finding out more about the exciting startup projects we have on offer to investors here at Bure Valley Group?
Get in touch today to start a conversation with our team and discuss some of the great investment memorandums we have available here:
+44 160 334 0827
