In his Spring Budget 2024 Chancellor Jeremy Hunt announced welcome tax cuts, as well as some new options for savers and investors. But how much impact will they really have on the money in your pocket? We look behind the headlines to find out.
National Insurance cut for employed
The starter rate of National Insurance for employees – which is charged on the band of earnings between £12,570 and £50,270 – is being cut to 8%, down from 10%, from April.
This will save employed people earning £35,000 a total of £448.60 a year, D2C platform AJ Bell has calculated. For lower earners the saving is smaller, as less of their income falls in the band liable for National Insurance. But for higher earners there’s the potential to save up to £754 a year.
Coupled with the changes to National Insurance already made in the Autumn Statement, the moves would save up to £1,508 a year for those earning £50,270 or more. For a more average earner on £35,000 a year the combined changes would still mean a saving of almost £900 a year.
Self-employed National Insurance cut
Self-employed National Insurance rates are also being cut from April. The rate for Class 4 contributions paid by the self-employed has been cut from 9% to 6%, at the same time as the government has scrapped Class 2 contributions.
For someone on £35,000 that represents a saving of £850 a year from April. Those earning above the higher rate threshold of £50,270 will save the maximum of £1,310.40 a year, AJ Bell has calculated.
The cuts to National Insurance benefit self-employed lower earners more than employed lower earners, thanks to the scrapping of Class 2 contributions. These were paid as a flat rate, rather than a percentage of earnings, meaning every self-employed person earning more than the threshold saves around £180 a year at current rates.
Higher rate of property capital gains tax cut
Capital gains tax (CGT) arising from residential property – second homes and investment properties, it is exempt on your main residence – is set at a higher rate than gains on other assets. This is being cut. The higher rate of capital gains tax on residential property will be reduced from 28% to 24% in April 2024.
This means a higher-rate taxpayer making a gain of £20,000 on their second home will pay £4,080 in CGT, after deducting the £3,000 CGT allowance, according to calculations by wealth manager Quilter. This is £680 less than what they would have paid under the previous regime, which would have charged them £4,760.
However, the new rate does not apply to the entire gain if it straddles the basic rate and higher rate bands. For example, someone who earns £45,000 and makes a gain of £20,000 on their second home will pay £3,763 in CGT, after deducting the £3,000 CGT allowance. This is because they will pay 18% on the portion of the gain that falls within the basic rate band (£5,270) and 24% on the portion of the gain that falls within the higher rate band (£11,730).
Introduction of a British ISA
The Chancellor is introducing a British ISA, which will give investors an extra £5,000 allowance – in addition to the current annual £20,000 – to invest exclusively in British companies and boost the UK equity market. Like other ISAs, any gains will be free of capital gains tax.
Reaction to the idea of a British ISA has been mixed. While the extra allowance has been broadly welcomed, critics say ordinary investors can already back British companies if they wish and should be encouraged to invest their money in ways that primarily improve their personal financial situation, not to support the political ambitions of the government of the day.
The consultation on the British ISA also asks the question whether other assets, including government bonds, gilts, be included. Investors should remember directly held gilts are not subject to capital gains tax (but exposure through investment funds is) – so holding them outside of an ISA, particularly in the secondary market, is preferable for most direct investors.
British Savings Bond
British Savings Bonds will be introduced, online-only, through NS&I, with a fixed three-year term. According to the NS&I website, the expectation is these will be on sale in early April, and more details due to be revealed online soon.
NS&I is a trusted brand and those savers who want their money safe and perhaps want to support UK businesses could well find these popular. However, the interest rate offered will need to be carefully thought out by NS&I, considering the current state of the savings market, or it could risk being overlooked.
NS&I products are popular, but savers will look elsewhere if a much higher rate can be obtained. A three-year term may be too much commitment for some savers. Moneyfacts Best Buys show many short-term bonds pay more than 5%, but three-year bonds pay much less.
Changes to High Income Child Benefit Charge
The High Income Child Benefit Charge (HICBC), which hits payments if one parent earns above £50,000 a year, is to move to a household-based system from April 2026. The threshold will rise to £60,000 from April 2024 in the meantime. The top of the taper where it is withdrawn is being raised to £80,000.
For individuals with income between £60,000 and £80,000, the rate at which HICBC is charged will be halved, and will equal 1% for every £200 of income that is more than £60,000.
Property investors lose out
Two changes affecting parts of the property market were announced. Stamp duty relief for people who purchase more than one dwelling in a single transaction, known as Multiple Dwellings Relief, is being scrapped, because the Chancellor said it was “regularly being abused”. Also abolished is the furnished holiday lettings regime, because the Chancellor said it created “a distortion meaning that there are not enough properties available for long-term rental by local people”.
Photo by Lisa-Blue on Canva
