The Chancellor today unveiled his “Budget for Long Term Growth”, which he claimed would help “build a brighter future”, but there was no relief for those past State Pension age who don’t pay National Insurance.
The Budget contained very few surprises, as virtually all the measures announced had been leaked prior to the speech. Changes included further cuts to National Insurance, an extension to the freeze on fuel duty, and the launch of a new British ISA.
Despite the supposedly generous cut to National Insurance for workers, most people will end up only marginally better off, due to the freezing of income tax allowances and what is known as ‘fiscal drag’. Fiscal drag is the process by which people end up paying more tax when tax rates and thresholds are frozen, as they earn more and their assets rise in value.
Here’s our rundown of some of the main Budget announcements, so you can see how they’re likely to affect you.
Contents
- National Insurance cut again
- Pensions
- State Pension
- Individual savings accounts (ISAs)
- British Savings Bond
- Help with the cost of living crisis
- Tax breaks for holiday homes scrapped
- Income tax
- Non-dom regime abolished
- Value Added Tax
- National Living Wage
- Dividend Allowance and Capital Gains Tax
- No changes to Inheritance tax
- Benefits
- Child benefit reforms
- Council Tax hikes
- Fuel duty and Vehicle Excise Duty
- Cigarettes and alcohol
National Insurance cut again
The Chancellor announced another 2p cut to National Insurance, in a move that will cost the government considerably less than reducing income tax.
National Insurance contributions are paid each year by those in employment, so that they can qualify for certain benefits, including the State Pension. Normally, these contributions automatically come out of your pay if you are employed by someone else, or you must submit them yourself if you are self-employed.
Although the announced cuts to National Insurance contribution rates sound generous at first glance, as lower rates mean less money coming out of your pay, the freezing of other tax thresholds means you won’t necessarily end up better off overall.
Andy Mielczarek, founder of SmartSave, a Chetwood Financial company, said: “Cutting NI will be celebrated, but we cannot escape the limited effect it will have. Someone on a salary of £30,000 will only get an extra £348 in their pocket annually thanks to the change, which will do little to reverse the impact of rampaging energy bills, food prices and living costs over the past two years.”
The National Insurance cuts will only benefit those in work, with pensioners still falling through the cracks.
Read more in our article Changes to National Insurance: will you pay less? Liz Megson, policy director at My Pension Expert, said: “Cutting income tax would have cast a much wider net and ensured that pensioners (who pay income tax on their pensions in retirement) also benefited from a savings boost. Once again, we must ask ourselves, why has the government taken a limited approach in a move that sacrifices the potential to help millions more people achieve a financially secure retirement?”
If you’re looking for a full or part-time job, a career change after 50, or to find your purpose post-retirement, we have lots of job and volunteering roles available on our site with age-diverse employers and organisations.
Pensions
There were several mentions of pensions in the Budget, although there was widespread disappointment that the National Insurance cut will not benefit pensioners who are often living on low incomes. The Chancellor talked about ongoing work on pension ‘pots for life’ so that people don’t lose touch with their pensions as they move from employer to employer.
Pension allowances were unchanged, however, so the amount you can save into a pension and earn tax relief on each year, known as your Annual Allowance, will remain at £60,000 in the 2024/25 tax year. You can also ‘carry forward’ any unused Annual Allowance from the last three years as long as you were enrolled in a pension scheme during that time.
Prior to April 2011, the Annual Allowance was £255,000, but was cut back to £50,000 on 6 April 2011 and then to £40,000 in April 2014, until it was raised to £60,000 in the 2023/24 tax year.
The Lifetime Allowance, which was a maximum you could save in your pensions over your lifetime, without having to pay any extra tax charges when you take money out of them, was abolished in April last year. However, a limit remains on the amount of money people can withdraw tax-free from a pension, and for those without protections, it will continue at its current level of 25% of the previous £1.073m Lifetime Allowance, equivalent to £268,275.
Learn more about pension allowances in our guide How do pension allowances work?
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Money Purchase Annual Allowance
The Money Purchase Annual Allowance will also remain at its current level of £10,000 in the 2024/25 tax year.
The MPAA was originally introduced to deter people from recycling their pension withdrawals back into their retirement pots so that they can benefit from double tax relief.
It is only triggered if you move your pension pot into a flexible-access drawdown scheme and start to withdraw taxable income. Drawdown enables you to leave your pension savings invested once you retire, and draw an income from them when required. It’s worth remembering that you’re also free to take a 25% tax-free lump sum out if you want to and this won’t trigger a reduction in your annual allowance. You can find out more about how drawdown works in our guide What is pension drawdown and how does it work? and about how the MPAA works in our guide What is the Money Purchase Annual Allowance?
State Pension
The State Pension will increase by 8.5% in April, in line with earnings, under the triple lock guarantee.
The triple lock guarantees that the basic and new State Pension will rise each year in April by the greatest of the following three figures:
- 2.5%
- The rate of inflation in the previous September, or the rate at which the cost of goods and services increases by, as measured by the Consumer Prices Index (CPI)
- Average earnings growth, as measured by the Office for National Statistics (ONS).
The full new State Pension will rise from £10,600 in the 2023/24 tax year (£203.85 a week) to £11,502 a year (£221.20 a week) in the 2024/25 tax year. The full old basic State Pension is currently £156.20 a week, and this will increase to £169.50 at the start of the new tax year.
Find out more about how the pension triple lock works in our guide What is the pension triple lock? and about the State Pension more generally in our guide How the State Pension works.
Pension Credit
Pension Credit will also be uprated by 8.5% in April, which will boost the income of single pensioners to around £201.05 a week. Find out more about Pension Credit and eligibility requirements in our guide Pension Credit explained.
If you think you might be eligible to make a claim, you can do so by phone using the Pension Credit claim line on 0800 99 1234. If you’d rather make a paper application, you can request one on the above number, or you can download and print a Pension Claim form here.
Individual savings accounts (ISAs)
A new £5,000 ‘British ISA’ allowance which can be invested in the UK will be consulted on, the Chancellor said. This would be in addition to the current £20,000 annual ISA allowance. However, it has received a mixed response from critics.
Rachael Griffin, tax and financial planning expert at Quilter said: “While the measure is touted as a boon for invigorating the UK stock market by encouraging investment in domestic equities, the introduction of this new ISA allowance raises significant implementation challenges and serves to further complicate the once-simple ISA brand.
“The ISA is a simple idea, a tax efficient place to grow your wealth, however, with various additions over the years it has now become a confusing area of personal finance. Faced with the complexities of this, consumers tend to just opt for what they know and that almost always is just a cash ISA. So few people use their total ISA allowance in a given tax year too so the allure of £5,000 more is only appealing to much higher net worth people.”
Under previously announced measures, current ISA rules will change from April. You can currently only pay into one of each type of ISA in any tax year (cash, stocks and shares or an innovative finance ISA which invests in peer-to-peer lending).
However, from April, you’ll be able to pay into as many of the same type of ISA as you want, again as long as you don’t breach your allowance. This means, for example, that you could open three cash ISAs if you want to, as opposed to just one.
Another change to ISAs happening in April is that you’ll be able to make partial transfers of current tax year ISAs into a different ISA if you want to. At the moment you must fully transfer your whole balance across.
British Savings Bond
A new British Savings Bond from NS&I will be introduced, offering a guaranteed fixed savings rate over three years. It is not yet known what this rate will be.
Mark Hicks, head of active savings at Hargreaves Lansdown, said; “All eyes will be on the rate available, because even savers who want to buy British with their cash will not want to accept a disappointing rate in return.
“With the Bank of England set to cut rates in the coming months, savers will need to think carefully whether they want to wait for this bond – with no certainty about the return on offer, or fix now, while they can still secure a great rate.”
You can find current top fixed savings rates in our article Fixed rate savings bonds explained.
Help with the cost of living crisis
Inflation, or the increase in the cost of living, rose by 4% in the 12 months to January 2024, but the Chancellor stated that we have now “turned the corner”, with the Office for Budget Responsibility predicting that inflation will fall to below the Bank of England 2% target in two months’ time. Find out more in our articles and What does inflation mean for my money?
The Chancellor acknowledged that many households continue to struggle with household bills and said that more than a million people have taken out budgeting advance loans to help them cover costs. The repayment period on these loans will be extended from 12 months to 24 months to help alleviate financial pressure. The £90 fee to obtain a debt relief order will also be scrapped.
The Household Support fund, which enables local authorities to provide support such as food vouchers to struggling families, will continue for a further six months, although charities had been hoping for a much longer extension. It was due to finish on March 31.
Our articles The energy bills crisis: what can you do about soaring costs? and
How to save money – 21 money saving tips suggest ways to keep energy and other household bills down.
Tax breaks for holiday homes scrapped
The property market was broadly shown the cold shoulder in the Budget, although the Chancellor announced plans to abolish the preferential tax regime for furnished holiday lets in a move designed to level the playing field between rental landlords and holiday let owners.
Shaun Moore, tax and financial planning expert at Quilter said: “Our calculations show that this could lose owners of holiday lets an average of £2,835 a year in a tax year. The calculations are based on a property purchase price of £350,000, with an annual mortgage rate of 4.5% and £20,000 rental income.
“For owners of holiday lets this could lead to a significant reduction in their net income. Should they lose the ability to deduct mortgage interest in full (in favour of a 20% deduction), alongside the potential increase in capital gains tax, this could make the holiday let business less financially attractive. This might result in a reduction in the number of properties available for holiday lets, which could impact local tourism.”
On the flip side, fewer holiday let properties could potentially help locals purchase homes in the areas where they live, but may previously have been priced out of.
Income tax
Most people will end up paying more income tax from April, due to the freezing of tax allowances.
The current tax thresholds are £12,570 (basic rate), £50,270 (higher rate), and £125,140 (additional rate). Rishi Sunak previously froze income tax thresholds until April 2026 when he was Chancellor, but Jeremy Hunt extended this for another two years in last year’s Spring Budget – taking it to April 2028. National Insurance Contribution thresholds will also be frozen until 2028.
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Non-dom regime abolished
The current “non-dom” regime will be abolished and replaced with a plan that allows overseas individuals to come to the UK and not pay tax on their overseas income and gains for four years. After that they will be taxed in the same way as other UK residents.
Sam Dewes, tax partner at HW Fisher said: “This is a very significant change to a long-standing regime that was designed to entice overseas wealth to the UK. The key proposed change that will attract inward investment to the UK is that the existing rules restricting “non-doms” from bringing their untaxed overseas income and gains has been removed.
“However, it remains to be seen whether four years is enough of a grace period to encourage high net worth individuals to the UK, particularly for those who want to come to the UK for their children’s schooling. The other big unknown is how many of the existing “non-doms” will look to leave the UK as a result of these changes. As part of abolishing the “non-dom” regime, the Chancellor has proposed a consultation on moving to a residence-based inheritance tax regime. We await further information about how these rules – which are some of the most complicated parts of the UK tax code – will be implemented in practice.”
Value Added Tax
The VAT threshold will increase from £85,000 to £90,000 – this is the level of turnover at which small traders and businesses need to formally register for VAT. It is the first time that this threshold has changed in seven years.
National Living Wage
The National Living Wage will increase from £10.42 to £11.44 an hour in April 2024, the largest increase seen in over a decade. According to The Treasury this will boost the pay packets of full-time workers by more than £1,800 a year.
Dividend Allowance and Capital Gains Tax
The higher rate of Capital Gains Tax on residential property will be reduced from 28% to 24%, the Chancellor announced, claiming that lowering the rate would lead to more transactions, ultimately driving more tax revenue into Treasury coffers.
The annual exemption for capital gains, which is currently £6,000, will be reduced to £3,000 from April 2024, with this reduction previously announced in the 2022 Autumn Statement.
The tax-free dividend allowance similarly will halve in April 2024, falling from £1,000 to £500.
This makes it more important than ever to make as much use of available allowances while you can. This includes topping up pensions to benefit from income tax relief, crystallising gains while the bigger exemption is available and transferring investments which are taxed into ISAs, if possible, to shelter future returns from tax. Married couples can also transfer assets to whichever spouse might have spare allowances that can be used or who is subject to lower rates of tax. Read more in our article Five ways to beat the Capital Gains Tax hike.
You can learn more about how ISAs work in our guide Everything you need to know about ISAs.
No changes to Inheritance Tax
Despite plenty of speculation that we could see a radical overhaul of one of the UK’s most hated taxes, there were no new measures affecting Inheritance Tax announced in the Spring Budget, with the threshold at which it becomes payable remaining frozen at £325,000 until April 2028. It has been at this level since April 2009. There is an additional IHT allowance of £175,000 which can be claimed where the family home is inherited by children or grandchildren.
There are various allowances which people may be able to use to reduce any potential liability. You can find out more about these in our guides Which gifts are exempt from Inheritance Tax? and Six ways to reduce inheritance tax bills. Learn more about how Inheritance Tax works in our article Understanding Inheritance Tax.
Benefits
Most means-tested benefits, including Universal Credit, will rise in line with September’s inflation figure of 6.7% from April. The monthly standard allowance for Universal Credit claimants over 25 therefore will rise from £368.74 to £393.45.
The Universal Credit taper rate, which was cut from 63p to 55p in December 2021, will continue to apply at this rate. The taper rate withdraws support from Universal Credit gradually as people work more hours. This means that for every £1 earned, sometimes above a certain threshold, known as the work allowance, their Universal Credit payment is reduced by 55p – meaning workers only take home 45p of each extra pound they earn. Find out more about Universal Credit and whether you might be eligible to claim it in our guide Everything you need to know about Universal Credit.
Child benefit reforms
There were reforms to the Child Benefit system, so that the threshold at which the High-Income Child Benefit charge is applied will rise from £50,000 to £60,000 from April. Partial Child Benefit will be paid where the highest earner earns up to £80,000, with a longer-term plan to move to a household-based system from 2026.
Council Tax hikes
Council tax bills are set to rise by up to 5% from April. Councils can raise tax by 5% without holding a referendum, but if they want to increase them by more than this, they must seek permission from the government.
The average UK Council Tax bill for a household in band D is currently £2,095, and is set to increase to £2,168 from April, though of course whether you actually face an increase will depend on where you live and which band your property is in. If you want to find out how you might be able to reduce Council Tax bills, read our article Six ways you might be able to save money on your Council Tax.
Fuel duty and Vehicle Excise Duty
The temporary 5p fuel duty cut that was introduced in 2022 was due to finish this month, with fuel duty due to increase by RPI inflation, but the Chancellor announced that he will extend the cut and also cancel the increase, saving the average driver an estimated £50 next year. The RPI increase has been cancelled by every Chancellor for the past 13 years.
Air passenger duty, the tax paid on flights, is set to increase for business class passengers.
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Cigarettes and alcohol
Alcohol duty has been frozen until February 2025. This freeze was previously due to finish in August this year.
The price of a typical packet of cigarettes will increase to over £16, up from an average cost of £14.39 for a packet of 20. Following a consultation period, a new tax on vaping products will begin in October 2026.
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