The latest Budget was the last chance for the current government to make meaningful changes to the tax system before the next election.  

Surprisingly, there was nothing that radical announced. It was a Budget that benefited basic rate taxpaying workers more than anyone else. 

So, let’s look at the main announcements from a financial planning point of view. 

Firstly, what’s not changed:  

  • All Income Tax bandings and allowances will stay the same. 
  • All pension and ISA allowances will stay the same.  
  • Inheritance Tax remains in place and allowances stay the same. 


Onto the key announcements… 

 

National Insurance 

As expected and heavily rumoured in the press beforehand, the main rate of Class 1 National Insurance impacting most employees was cut from 10% to 8%. This will start from 6th April 2024.  

This is now the second cut in the last six months as the Autumn Statement last year announced a cut from 12% to 10%.  

This is good news for workers as even though the National Insurance tax savings will now be lower for salary sacrifice pension contributions by basic rate taxpayers, take home pay will increase. 

It’s similar news for the self-employed as the Class 4 National Insurance rate will be cut from 9% to 6%.  

Unfortunately, no changes to Income Tax which is making things more difficult, especially for people approaching retirement as the frozen tax bands means more income is being caught in higher tax bands.  

This means it’s essential to ensure you are maximising your pension contributions if not yet drawing on your pensions. If you are drawing from pensions, make sure this is done in the most tax efficient way. 

Capital Gains Tax 

Currently there are two different Capital Gains Tax (CGT) rates depending on whether the gain comes from the sale of property or something else.  

The current CGT rates for gains on the sale of property are 18% for gains falling in basic rate tax bands and 28% for gains falling in the higher rate tax band.  

From 6th April 2024 the higher CGT rate will be cut from 28% to 24%. A decent saving for those higher Income Taxpayers selling an investment property.  

If you are currently planning to sell an investment property you might want to hang on until after 6th April 2024 to make the tax saving. 


High Income Child Benefit Tax Charge 

There was some good news for basic rate taxpayers who receive Child Benefit.  

Currently, there is a tax charge of 1% of the Child Benefit payment you receive for every £100 your adjusted net income is over £50,000. This means if you earn £60,000 or over you lose all of your Child Benefit.  

From 6th April 2024 the starting level will move to £60,000 and the rate at which the charge will apply will be 1% for every £200 your adjusted net income is over £60,000. This means you will not lose all your Child Benefit until you earn £80,000 or over.  

A reminder that a pension contribution can be a useful way to bring your income back down to the £60,000 and therefore keep all of the Child Benefit.  

Parents who are keen to put in place Inheritance Tax mitigation strategies via gifting may wish to help their children by making these pension contributions and getting the double whammy of saving Child Benefit too. 

There was also finally some sensible planning to take place as the government announced they will be consulting on how to change the High-Income Child Benefit Tax Charge rules so that it is assessed on household income rather than individual income. This rule will hopefully change by April 2026. 

This will hopefully remove the stupid rule that states someone earning £60,000 will lose all the family Child Benefit but a couple both earning £49,999 get to keep it all.  

 

UK ISA 

An interesting addition to the ISA family is coming. The government plans to launch a new ‘British ISA’ which will have a £5,000 allowance. This will be in addition to the £20,000 you can use with the current cash and stocks and shares ISA.  

The idea is that this ISA can only invest in UK shares.  

There is currently a review into how it’s all going to work so no launch date yet.  

It was also announced that defined contribution pension schemes would need to publicly disclose how much of their investments were into UK businesses compared to overseas. 

Whilst the additional tax savings would be welcome trying to force people into investing into UK shares is not necessarily a good thing.  

Only around 3% of global capital is invested in the UK and there is a reason global funds allocate a small amount to the UK. The UK stock market is very different to other areas of the world and it is a risk to be overly concentrated in one area.  

There is no point making tax savings if your investment returns are poor. 

Investors who wish to benefit from this allowance and remain properly globally diversified would need to have £100,000 in a separate ISA already invested in a global equity fund excluding UK.  

 

NS&I British Savings Bond  

It was announced that the NS&I will launch a new guaranteed growth bond early in April 2024 that will offer a guaranteed interest rate for three years for deposits between £500 and £1million. 

Clearly, much will depend on what the interest rate is and remember that the interest will be subject to tax.  

The advantage of NS&I products is that they are 100% backed by the UK government so more secure than other banks and building societies. 

Other  

There were changes announced to the UK resident, non-domiciled status and the abolishment of the Furnished Holiday Lettings regime.  

 

If you would like to stress test your retirement plans, make significant tax savings or even to get a plan in place then please get in touch for a free no obligation 15-minute call. We would be happy to review your position, explain where you stand and what you need to do to get the outcome you desire. We have created hundreds of happy and protected retirements over the years. This could be you too.  

Risk warning:

Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.