Introduction

Chancellor Jeremy Hunt has unveiled a series of new financial policies during the Spring Budget announcement on March 6, 2024. These policies are expected to have significant implications for various sectors. Notably, this budget is likely to be the last major fiscal event before the upcoming general election, projected to take place in the autumn, with a possibility of delay until January 2025.

1. Understanding the Spring Budget

In the Spring Budget, the UK government discloses the current state of the economy and presents the latest forecasts from the Office for Budget Responsibility (OBR). Of paramount significance is the unveiling of the government’s fiscal strategies for the upcoming year, placing considerable emphasis on both tax policies and expenditure plans.

2. Counting the costs, how the Spring Budget could affect you and your household

The OBR anticipates a decline in UK inflation from 4% to below the 2% target within the next two months, coupled with a projected growth of 0.8% for the UK economy this year and a more substantial increase of 1.9% forecasted for 2025.

Now, let’s delve into some of the major revelations from the Spring Budget and explore their potential impacts on your finances.

3. The New UK ISA and British Savings Bonds

Hunt has unveiled plans for the introduction of a ‘British ISA’ following a consultation, enabling individuals to invest exclusively in the UK. The proposal includes an additional tax-free annual allowance of £5,000, supplementing the existing £20,000 allowance.

Starting from April 2024, National Savings, and Investments (NS&I) will introduce British Savings Bonds, featuring a 3-year fixed interest account.

4. National Insurance Cuts

Jeremy Hunt announced a reduction in national insurance rates, dropping from 10% to 8% effective from April 6th. This follows a prior decrease from 12% to 10% announced in January during last year’s Autumn Statement. However, income tax thresholds will remain static, partially mitigating the impact of these tax reductions.

Self-employed individuals will also witness a decline in Class 4 national insurance rates, decreasing from 8% to 6%. Chancellor Hunt estimates that this national insurance rate cut will result in an average annual benefit of £450 in 2024/25 for 27 million workers.

Notably, individuals above the state pension age earning less than the national insurance threshold of £12,570 will not experience any change due to this cut.

These measures aim to provide relief to a significant portion of the workforce while taking into account the nuances of different age groups and income brackets.

Nevertheless, the impact of freezes on personal allowances may reduce some of these benefits, especially for individuals moving into higher tax brackets due to salary increases or job changes.

5. Changes to Child Benefit

Currently, when a parent’s income is more than £50,000, they begin to lose their entitlement to the child benefit allowance, ultimately forfeiting it entirely at the £60,000 income threshold. However, if both parents collectively earn more than £50,000, they continue to receive the full child benefit.

Starting from April 2024, the child benefit threshold will increase to £60,000, with an upper limit of £80,000, at which point the entire child benefit must be repaid. The government anticipates that nearly 500,000 families will experience an average increase of £1,260 in child benefit for 2024-25.

Looking ahead, by April 2026, the child benefit system is set to transition to a household-based structure, reflecting a significant shift in the approach to benefit distribution.

6. Inheritance Tax

Leading up to the November 2023 Autumn Statement, there was widespread speculation about potential cuts or the complete abolition of Inheritance Tax (IHT). However, contrary to expectations, no such measures were introduced.

Under the current system, an IHT bill of 40% typically applies when an individual’s assets exceed £325,000 upon their death. Notably, only around 4% of estates, predominantly held by the wealthiest individuals in the UK, are subject to IHT.

Rather than announcing immediate IHT reforms, the government disclosed plans to “move to a residence-based regime” and pledged to initiate consultations to determine the most effective implementation method. Importantly, there are no anticipated changes to the Inheritance Tax system before April 6, 2025. This signals a deliberate approach by the government, acknowledging the complexities involved and opting for a thorough consultation process before potential modifications to the existing IHT framework.

7. VAT

The VAT registration threshold is set to increase from £85,000 to £90,000 starting April, marking the first adjustment after a seven-year freeze.

Additionally, Jeremy Hunt disclosed plans for the full expensing of leased assets, signalling an intention to implement this change as soon as its financially feasible. This move aims to streamline financial considerations for businesses engaging in leasing arrangements, potentially offering them a more favourable tax treatment in the future.

8. Property Tax Changes

Jeremy Hunt has announced a series of changes in property tax, targeting second homeowners and reshaping existing incentives. One significant alteration involves the abolition of tax breaks that previously made short-term property rentals to holidaymakers more lucrative than long-term tenancies for second homeowners. Effective from April 2025, the furnished holiday lettings (FHL) tax regime will be abolished.

Furthermore, the multiple dwellings relief for stamp duty, applicable when purchasing more than one property in a single transaction, is also set to be abolished.

In a move to ease the tax burden on property transactions, Chancellor Hunt has declared a reduction in capital gains tax on residential property from 28% to 24%, starting from April 6th. This adjustment is poised to impact those engaged in property transactions, potentially influencing investment and letting decisions in the property market.

9. Non Dom Tax Regime Abolished

In a significant shift in tax policy, Chancellor Hunt has unveiled changes to the non-domiciled (non-dom) tax status, impacting individuals whose permanent residence is outside the UK. Under the existing system, non-doms are only taxed on their UK-sourced income.

However, effective from April 2025, the non-dom tax status will be abolished, making way for a new ‘modern residency system.’ Hunt says it will make the system “fairer and competitive”.

This system aims to ensure that all UK residents who spend more than four years in the country are subject to the same tax rates on their foreign income and gains, irrespective of their domicile status. This change represents a comprehensive adjustment to tax regulations, seeking to create a more equitable taxation framework for individuals residing in the UK for an extended period.

10. Commitment to Pensions Reform: “Pot for Life”

The government has affirmed its dedication to researching a long-term model known as a ‘pot for life’ or lifetime provider model for defined contribution workplace pension schemes. In its statement, the government expressed its commitment to ongoing analysis and engagement to assess how such a model could enhance outcomes for pension savers and build upon the existing foundations of ongoing reforms.

This signals a sustained effort to explore innovative approaches in the realm of pensions, with a focus on improving the overall experience and outcomes for individuals participating in defined contribution workplace pension schemes.