interactive investor comments on the Conservative manifesto

With manifesto week in full swing, interactive investor, the UK’s second-largest platform for private investors, comments on today’s Conservative manifesto.

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National Insurance reduction – don’t forget about fiscal drag

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “While most taxpayers will benefit from the NI cut, those on opposite ends of the income spectrum would see the complete nullification of the benefit due to frozen tax thresholds, known as fiscal drag. This means that more of your income is taxed over time as your pay rises with inflation but tax thresholds remain the same.

“Someone currently earning £20,000 would lose £81 due to extra tax by in the next tax year, as more and more of their income is taxed at a higher rate, rising to £1,064 for someone on £100,000, compared to if the thresholds rose with inflation.

“The burgeoning tax burden provides extra impetus to look carefully at various aspects of your finances and tax planning. While salary sacrifice can help mitigate the tax burden, it is important to note that a lower salary can affect entitlements such as maternity/paternity pay, mortgage applications based on one’s income, and some state allowances. This demonstrates why savers and investors need to consider how such benefits could impact their finances more broadly. Not always easy, but definitely important.”

The power of utilising tax-free investing

Alice Guy, Head of Pensions and Savings, interactive investor, adds: “Whoever wins the next election, we’re unlikely to see an overall reduction in our tax burden as frozen tax thresholds mean we'll pay tax on more of our income over time. With taxes on income at a high level, it’s never been more important to protect your wealth by investing in a tax-efficient wrapper such as a pension or an ISA.

“Paying into a pension through salary sacrifice is a simple way to reduce your national insurance bill and is particularly beneficial for basic-rate taxpayers who save £28 tax for every £100 they pay into a pension through salary sacrifice, £20 income tax and £8 national insurance.”

The impact on the self-employed

Guy adds: “It’s also interesting to see a focus on tax for self-employed workers, who often find it hard to build long-term wealth. They are more likely to have irregular incomes, which makes it hard to budget and save for the future. Our research (2023 Great British Retirement Survey) shows that 76% of self-employed workers are not currently saving into a pension, leaving them potentially financially vulnerable if they can’t work in later life.”

The potential abolition of stamp duty for most first-time buyers – don’t forget about mortgage rates

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “While stamp duty on property purchases can make a profound difference to affordability, the main barriers to entry for many first-time buyers are high mortgage rates as well as the ongoing resilience in property prices, underpinned by the ongoing demand-supply imbalance in the housing market.

“Fast-rising rents haven’t helped matters, reducing disposable income to put towards saving for a home purchase – forcing many to delay their plans to buy a home.”

Alice Guy, Head of Pensions and Savings, interactive investor, adds: “Young people face a huge financial juggle as they balance saving for short-term and long-term needs. There are big pulls on your limited financial resources when you start your working life. Saving for your first house often comes at the same time as starting a family and beginning to build pension wealth for the future.”