With the UK economy falling into a recession last year, and the overall tax take approaching a level not seen since the aftermath of World War Two, all eyes were on Chancellor Jeremy Hunt as he delivered a much anticipated Spring Budget.

Billed as the ‘Budget for long-term growth’, let’s explore the key takeaways and how they will impact your personal finances.

Economic Forecast and Fiscal Targets

The Chancellor started by giving an overview of the latest economic data and forecasts:

• Inflation (CPI) was a lofty 11% when the PM and Chancellor first took office. Meeting their pledge to halve this, CPI has reduced to ‘just’ 4% with the Office for Budget Responsibility (OBR) forecasting it to fall below 2% in the coming months. Although, credit here can also be attributed to the Bank of England’s recent monetary policy.

• The OBR upgraded its expectations for UK growth, now forecast at 0.8% this year up from a previous estimate of 0.7%. The following year, growth is expected to pick up to 1.9%, up from the November forecast of 1.4%.

Whilst an upgrade is always welcome, the five year forecast remains broadly in line with that of November, highlighting the UK’s weak performance last year. However, if forecasts have taught us anything, it’s to take them with a pinch of salt!

Individual taxes

It turns out lightning does strike twice!

Consistent with rumours in the build up, it was announced that from 6th April the main rate of Class 1 National Insurance Contributions (NIC) will be cut by 2% from 10% to 8%, mimicking the measure announced in the Autumn Budget last year. This will save the average worker an estimated £450 a year (£900 when combined with the 2% reduction announced last autumn).

Perhaps less expected was the reduction of the higher rate of capital gains tax (CGT) on property, from 28% to 24%. The lower rate remains at 18%. With property owners feeling the pinch as a result of mortgage rate rises and less favourable tax legislation, the environment for buy-to-lets has become relatively less attractive and could drive a higher proportion of property investors to leave the market.

The Chancellor also announced that Stamp Duty Land Tax Relief for those purchasing multiple dwellings in one transaction will be abolished from 1 June 2024, whilst also abolishing the Furnished Holiday Lettings tax regime from 6 April 2025.

Turning to foreign nationals living in the UK, the Chancellor also announced that the current non-domicile tax status is set to be abolished and a replacement system put in place. From April 2025, new arrivals will not be taxed on foreign income and gains for the first four years, then will revert to the same tax system as a UK national thereafter.

Benefits - Young families

Arguably the biggest winners from the Spring Budget were higher earning young families, with a change to the High Income Child Benefit Charge. Currently, the child benefit paid to those earning more than £50,000 a year is clawed back via taxes on a sliding scale. The charge has been 1% of the amount of the child benefit for each £100 of income between £50,000 and £60,000. The “tax on children” - as it is sometimes referred to - has led to parents having effective marginal tax rates of up to 71% on earnings between £50,000 and £60,000 in some cases.

The Chancellor announced that this lower limit would rise from £50,000 to £60,000 of annual income, with a tapered charge between £60,000 and £80,000 of annual income. This means nearly 500,000 families will be better off by an average of £1,260 a year, while almost 170,000 families will be removed from the ‘tax’ altogether.

By April 2026, a so-called ‘fairer’ system will be introduced which aims to test families based on ‘household’ income rather than individual incomes. Whilst it is pleasing to see a fairer system in the wind for the child benefit, many will no doubt be disappointed that the system for Government help towards childcare is not being addressed in the same manner.

Pensions, Savings & Investments

It was a relatively quiet budget as far as pensions and investments were concerned. The biggest announcement being the promise of a new ‘British ISA’ which will allow individuals to save an additional £5,000 per year in a tax-free environment, where these funds are invested in UK companies (although what exactly falls within this definition is still to be determined).

Whilst a 25% increase in ISA contributions is a very exciting tax benefit for financial planning at face value, the finer details are yet to come. With the consultation set to run until 6 June, we expect there will be plenty of debate as this policy fully develops.

Summary and Key Takeaways

We are told that disposable income per person is now expected to increase modestly in real terms in 2024/25, whilst average earnings are also forecast to increase more quickly in real terms as inflation falls faster than anticipated.

So, with that in mind, how should you react:

• Understand your objectives: With work, family and other commitments keeping you occupied, it can be easy to forget to think about the bigger picture. You should regularly ask yourself “what is it all for?”. Take some time to step back and visualise what your key life milestones are and when you’d like to achieve them. When you look at your life through this lense it becomes much easier to understand which tax structures should be used, to give yourself the best chance of success.
• Be flexible: The tax system in the UK is constantly changing and from our experience, it isn’t always a positive change for all taxpayers. By planning ahead and being nimble, you can build a portfolio that is better able to navigate future changes in tax legislation, whether they be good or bad.
• Be tax-efficient: If you’re one of the lucky ones who finds yourself with additional disposable income due to some of the (albeit modest) tax cuts, then assuming you have an appropriate emergency cash fund, you should consider how to build your wealth more tax efficiently. This means making the most out of the tax allowances available - watch this space to see how the new ‘British ISA’ could help here! Planning ahead here could help to save thousands of pounds in the long run.
• Stay on-track: We’ve seen several tax announcements from this Budget, some helpful for some, but not so much for others. In any case, the changes for the most part would be unlikely material enough to derail a sensible financial plan. Conversely, making knee-jerk reactions could increase the likelihood of your plan failing.

Everyone is different and whether your plan is exiting your business, retirement, travelling the world, helping out your family and friends, or gifting to charity, the need for a robust financial plan is as important as ever.

In a complex world full of ever-changing rules, if you’d like to understand how your wealth can help you access more in life or if you simply want to check that you are on the right track, do feel free to reach out for a free consultation with one of our partners by using this link.

Disclaimer

This blog post is a marketing communication for information purposes only and is not intended as an offer or solicitation to buy or sell any particular financial product. The facts and figures mentioned in this article are relevant for the associated tax years and may not be correct for previous or future periods. Personal opinions may change and in producing this article we have not taken into consideration any individual circumstances, therefore it should not be seen as advice or a personal recommendation.

Any references to past performance should not be taken as a reliable indication of future returns. The value of an investment, and any income from it, can fall or rise. Fees and commissions may have not been expressly indicated, and you should take into account the effects that these have on the performance of a financial portfolio.

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