Spring Budget Highlights

The new tax year will finally bring in the landmark changes to pensions announced in 2023’s Spring Budget. The Spring Budget 2024 announced last week makes tweaks to some other tax allowances but apart from a further 2% cut to National Insurance (NI) and a new £5,000 ‘British ISA’ allowance, the changes announced by Jeremy Hunt on 6 March seem fairly small. Here are a few of the highlights…

National Insurance

Doubling down on the 2% cut announced in the Autumn Statement, the Chancellor will cut the main rate of NI by 2% again from 6 April. The new rate of 8% will apply to employment income between £12,571 and £50,270 with a maximum saving of £754 a year. Given NI is controlled by Westminster, the lower rates will apply north and south of the border.

Pensions

No new pension changes were announced which is welcome news for the industry which is still grappling with the transformational changes we covered in our New Pension Puzzles blog.

The complex new rules mean that some will be entitled to more tax free cash but only if they apply for a ‘transitional tax free amount certificate’ after 5 April before they withdraw any more tax free cash from their pensions. If you plan to withdraw tax free cash from your pension soon and you don’t know if this affects you, it’s a good idea to speak to your financial planner first.

British ISA – consultation

A new British ISA will be introduced to support investment in the UK. This will add a further £5,000 to the existing £20,000 ISA allowance.

The government is still deciding what kind of investments UK ISAs can hold via a consultation closing on 6 June 2024. Carbon’s Investment Team is watching this space closely though it’s likely to be several months at least until the rules are finalised and longer still until investment providers launch products that let people use the new allowance.

Pre-announced ISA change

Going forward from April, it will be possible to invest in multiple cash or stocks and shares ISAs in a year without the funds losing their ISA status. The overall limit of £20,000 of course still applies.

Child Benefits

Child benefits are currently withdrawn at a rate of £1 for every £100 earnings the highest earner in a household has over £50,000 via an offsetting tax. The benefit is lost entirely if the ‘high earner’ has income over £60,000.

From April, the threshold before child benefit is withdrawn will increase to £60,000 and the withdrawal rate will be more gradual, £1 for every £200 of income. This means the benefit will not be cancelled out until the highest earner’s income reaches £80,000.

Capital gains tax (CGT) & Investment Income

As previously announced the tax-free amount available to individuals on investment gains before tax applies will be cut from £6,000 to £3,000 from 6 April. Similarly, the dividend allowance will be cut from £1,000 to £500.

These changes make using up CGT exemptions and ISAs seem more important than ever as we discussed in our End of tax year actions blog.

Capital gains and residential property

The higher rate of residential property CGT that applies when someone sells a second property or buy to let will be cut from 28% to 24% from 6 April. Gains falling within the basic rate band will still be taxed at 18% and main residences will continue to be exempt from CGT.

What happens next?

There’s much speculation in the news about how long some of the latest changes might last given the pending UK election, though there are no clear-cut signs from Labour explaining how the party might do things differently or reverse any of the changes announced this year and last.

As always, we feel the best approach is to focus on the things you can control and create a robust plan that can cope with the yearly tinkering from the Chancellor!

Should you wish to discuss any of the changes announced or have any questions, please contact us and we would be happy to help.

The value of investments and the income derived from them can fall as well as rise. You may not get back what you invest. This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice. You are recommended to seek competent professional advice before taking any action. Tax and Estate Planning Services are not regulated by the Financial Conduct Authority. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.