With a new tax year starting next month, and expectation of a general election later this year, the Budget could have a big impact on the government’s fortunes as well as our own.
Chancellor Jeremy Hunt might have been seeking to turn around Conservative electoral fortunes as he placed tax cuts for workers at the centre of his Budget – but recent contractions in the UK economy may have sunk any plans for the kind of income tax reduction that could be guaranteed to buy votes.
So, what exactly did he announce in his lunchtime budget speech to parliament on Wednesday 6th – what exactly will it mean to you and your family finances – and who are the winners, and who are the losers?
The UK economy
Presenting the Budget, the Chancellor was upbeat.
The battle against inflation may have been won. He spoke of UK’s inflation rate being forecast to fall below the 2% target “in just a few months’ time”.
He also said the Office for Budget Responsibility now predicts the economy will grow by 0.8% this year, up from its previous prediction of 0.7%. The forecast for 2025 has also been raised to 1.9% from 1.4%.
The expectation of extra leeway from higher growth might have been expected to prompt the chancellor to include some generosity in the Budget. But with revenue down and a large treasury deficit still to fill, the dramatic cuts to income tax, inheritance tax and even stamp duty that were being speculated about over the past few weeks were sadly not in his red box.
However, there was some good news – including cuts that most people will benefit from.
A cut in National Insurance
Despite its name, National Insurance is a tax. If you’re an employee, you currently pay 10% on earnings between £12,570 and £50,270 in Class 1 National Insurance contributions.
This is being reduced to 8% from this April. The latest National Insurance cut will benefit around 27 million workers, with the average person saving £450 a year.
An employee on a salary of £30,000, who is currently paying £1,743 a year in NI, will see the amount they pay fall by £348.60 to £1,394.40. Employees on higher salaries of £50,270 or more –higher and additional-rate taxpayers – will see annual disposable income rise by £754.
Self-employed people had been paying 9% of earnings over £12,570 and in the Autumn statement this was reduced to 8%, however, in yesterday’s speech the chancellor has announced that from April 2024 this will drop to 6%.
However, this threshold for when you start paying National Insurance remains frozen until April 2028. This means, despite the cut, more people will be paying tax for the first time when they get a pay rise.
A cut in capital gains
Capital Gains Tax – paid when an investor disposes of an asset for a profit – is levied according to the tax bracket the investor is in. Those with incomes above £50,271 pay 28% tax on gains from residential properties. This higher rate of property capital gains tax will be reduced from 28% t to 24%.
Fuel duty frozen
The levy on fuel has been frozen at 57.95p per litre since March 2011 and was temporarily slashed by an extra 5p – to 52.95p – in 2022 by Rishi Sunak, the Chancellor at the time. This additional 5p cut was set to be reversed but the Chancellor has now extended it again. He said the freeze would save drivers an average of £50 next year – although rising fuel prices might make the saving hard to see.
Launching a ‘British ISA’
The British ISA will allow investment in UK equities, boosting funding for business and increasing the amount investors can keep safe from the taxman. It will provide an extra allowance of £5,000 a year, invested in UK equities, taking their annual ISA limit to £25,000.
Increase to VAT thresholds
The VAT threshold is the level of taxable turnover above which businesses have to register for VAT. It has not been changed in seven years, remaining at £85,000. It is being increased to £90,000, which would mean fewer small businesses would pay tax.
Small businesses might also benefit from an extension to the Recovery Loan Scheme
New vape tax and rise in tobacco duty
Currently, vaping products are subject to 20% VAT but, unlike tobacco, they are not also subject to excise duty.
From October 2026 there will be a new vape tax, and an increase in tobacco duty.
Pension changes
Mr Hunt confirmed that the government were still looking at the “Pots for Life” pension scheme which was introduced in the Autumn Statement. It means savers can choose their private pension and carry it throughout their working career, instead of having multiple pots for each job they work in.
He also mentioned new powers will be given to the Pensions Regulator and Financial Conduct Authority (FCA) to ensure better value from defined contribution schemes.
Cost of living support continued
The Household Support Fund, aimed at supporting vulnerable households with the cost of living will be extended a further six months beyond March.
The fund is provided by local councils for people who are struggling to afford things like energy and water bills, food, and essential items.
Alcohol duty frozen
Mr Hunt said he would extend the alcohol duty freeze until February 2025 cutting costs for breweries, distilleries, restaurants, nightclubs, pubs and bars. The freeze particularly benefits pubs across the UK, which are facing challenging times.
Holiday lettings tax crackdown
The furnished holiday lets scheme, which gives extra tax relief on properties rented out for holidaymakers has been scrapped.
Multi-property stamp duty relief scrapped
Buying multiple properties in one transaction can provide buyers with a reduction in stamp duty, which is a tax paid on property purchases. This ‘multiple dwellings relief’ will be cancelled.
Air passenger duty up
Mr Hunt announced a one-off adjustment to rates of air passenger duty on non-economy flights. He did not give numbers for this in his Budget speech.
Non-doms to be taxed
Foreign nationals who live in the UK but are officially domiciled overseas– ‘non-doms’, currently escape UK tax. From April 2025, new arrivals to the UK will not be required to pay any tax on foreign income and gains for their first four years of UK residency, a more generous regime than at present. After four years, those who continue to live in the UK will pay the same tax as other UK residents.”
High income child benefit reform
The high-income child benefit charge kicks in when a parent earns £50,000 or more, reducing the amount of child benefit paid, and removing the payment entirely when the parent earns more than £60,000. It means that a family where one parent earns £60,000 and the other earns £10,000 (a total of £70,000) gets no child benefit, but a family where both parents earn £49,000 each (a total of £98,000) can keep all of the money.
Mr Hunt announced a consultation on a “family-based” assessment, removing some unfair anomalies.
So – do you win or lose?
Winners
- Workers
- Families with children
- Savers
- Second homeowners and property investors
- Drinkers
- Drivers
- Small businesses
Losers
- Vapers
- Airbnb hosts and holiday homeowners
- Non-doms
- Business class passengers
What will it all mean for your finances?
The budget has included very few surprises and the impact on finances might not be too dramatic for most people.
However, any change in taxation and allowances needs to be factored into your financial plans.
With a new tax year starting next month, understanding the changes, and particularly how they will impact your own tax position is now urgent.
For an expert view on the budget and to help it make you a winner rather than a loser, call us at Continuum, to work out a personal budget of your own.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice, you should seek independent financial advice before embarking on any course of action.
The Financial Conduct Authority does not regulate taxation advice.
Levels, bases and reliefs from taxation are subject to individual circumstances and may be subject to change.
The value of investments and pensions can fall as well as rise and you may get back less than you invested.
Budget 2024: The key announcements of Chancellor Jeremy Hunt’s speech | Politics News | Sky News
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