What changed in tax and pensions this year and what to expect in 2024

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We get it: this time of year can be busy. But got a few minutes to spare? Then it’s worth catching up on the tax and pensions changes that came in during 2023 – and getting ready for the changes that could affect your personal finances in 2024.

Is the State Pension increasing?

The State Pension will rise by 8.5% from April 2024, as confirmed in the Autumn Statement. This will affect you whether you’re eligible for the new flat-rate State Pension or the older basic State Pension.

From April 2024, those qualifying for a full new State Pension will receive £221.20 a week (up from £203.85). Those who reached State Pension age before April 2016, who are on the full basic State Pension, will get £169.50 – up from £156.20. You can check your own State Pension forecast on the government’s website.

This increase is happening because the government has kept the ‘triple lock’. The triple lock usually means that State Pension payments rise each year by the highest of inflation, average earnings growth or 2.5%.

Even with this rise, the State Pension on its own would give you less each year than a minimum wage salary. So it should only form part of your retirement plan, especially if you hope to enjoy a comfortable retirement.

Will the State Pension age stay the same?

The State Pension age is due to increase over the next couple of decades. At the moment, it’s 66 – rising to 67 by 2028. 

The State Pension age is set to rise to 68 between 2044-2046. The government has confirmed it’s sticking to this timeframe for now, even though there had been talk of bringing the increase forward. The State Pension age will be reviewed again in the next few years.

Which tax allowances are staying put?

The standard personal allowance has stayed at £12,570.

The threshold for the additional-rate band (45%) changed in April this year – going down from £150,000 to £125,140. Income tax thresholds are due to stay at their current levels until 2028. 

You can learn more at GOV.UK. Tax bands and rates are different in Scotland.

The overall Individual Savings Account (ISA) allowance has stayed at £20,000. The Junior ISA (JISA) allowance is still £9,000. 

Limits on the nil and residence nil rate bands for inheritance tax have been frozen until 2028.

Tax changes to know about

National Insurance

From 6 January 2024, the main employee National Insurance (NI) rate is being cut from 12% to 10%. 

As of April 2024, Class 2 NI contributions will be scrapped, and the Class 4 contributions will reduce from 9% to 8%. This will impact self-employed people. 

People can use Class 2 contributions to build up their NI record, helping them qualify for the State Pension and various benefits. The Chancellor has said there will be no impact to this, and you can still pay voluntary contributions.

Capital gains tax

Capital gains tax (CGT) is a tax you pay on the profit when you sell something that has increased in value. The amount you’re exempt from paying tax on was reduced from £12,300 to £6,000 from April 2023, and is due to go down to £3,000 from April 2024.

Tax on dividends

If a company makes a profit, it can give shareholders some money back – ‘dividends’. You can earn some dividend income each year without paying tax on it, known as your ‘dividend allowance’. Anything above this and there will be a tax charge.

The dividend allowance went down to £1,000 in this year. It’s due to go down to £500 from 6 April 2024.

You don’t pay tax on dividends from a Stocks and Shares ISA.

Are pension allowances changing?

There were big changes to pension allowances in 2023, which you should keep in mind as we head into 2024. 

First up – the pension annual allowance. This is the total amount you, your employer and any third party can pay in across all your pension plans in a tax year before you face a tax charge. In April, the standard annual allowance went up from £40,000 to £60,000. 

The money purchase annual allowance increased from £4,000 to £10,000. This impacts people who have started taking their pension savings but want to keep paying into their plan. The increase means you can pay in more than you previously could without facing a tax charge.

The minimum tapered annual allowance rose from £4,000 to £10,000, meaning high earners can pay more into their plans than before without facing a tax charge. It affects people whose ‘adjusted income’ is more than £260,000 (previously it was £240,000). 

You can find out more about pension allowances on MoneyHelper.

Finally, let’s look at the pension lifetime allowance. This is the total amount you can have in pension savings during your lifetime – across all pension plans – before an additional tax charge applies. The standard lifetime allowance is £1,073,100. 

As of 6 April 2023, no-one needed to pay the additional tax charge if they went over the lifetime allowance. The government has now said the lifetime allowance will be totally abolished from 6 April 2024. 

What cost-of-living support is there for pensioners?

Increase in Pension Credit

The standard minimum income guarantee for those receiving Pension Credit will increase by 8.5% from April 2024. For a single person, it’ll go from £201.05 to £218.15 per week. For couples, it’ll go from £306.85 to £332.95.

Not sure if you’re eligible for pension credit? Find out how to check in our article.

Cost-of-living payment

The government committed to giving households on means-tested benefits an extra £900 cost-of-living payment in the 2023-24 tax year. If this applies to you, you’ll likely be due another instalment by spring 2024.

Pensioner households can get an additional £300 this winter. Individuals on disability benefits were entitled to an extra £150 in 2023. 

You can find out more on GOV.UK.

More changes to come next year?

We’ll keep you up to speed with whatever changes the new year brings. Visit the MoneyPlus website, where all our tips and guidance can be found.

 

The information here is based on our understanding in December 2023 and shouldn’t be taken as financial advice.

Pension plans and some types of ISAs are investments. Their value can go down as well as up and could be worth less than was paid in.

Your own personal circumstances, including where you live in the UK, will have an impact on the tax you pay. Laws and tax rules may change in the future.

Standard Life accepts no responsibility for information in external websites. These are provided for general information.