Spring Budget 2024: what it means for you?

Jeremy Hunt’s 2024 Spring Budget was short on fireworks but certainly raised some eyebrows.

With UK economic growth flatlining, the chancellor was not afforded the fiscal headroom he desperately wanted to deliver the kind of tax giveaways to power the Conservative Party’s election campaign.

Whether this will prove the last Budget before voters hit the polls remains unclear. Rishi Sunak has until December to call an election, which means the government could give itself another opportunity at the Autumn Statement.

Either way, there’s plenty to digest from this year’s first set-piece fiscal event, including good news for workers, parents, small businesses, and investors.

Before we round-up what the chancellor unveiled and explain what they mean for you, let’s briefly cover the economic picture.

Economic outlook

The chancellor claimed the UK has “turned a corner on inflation”, saying that price rises are expected to fall below 2% in a few months’ time – though this was something we knew already.

He also said that UK borrowing will fall to 1.2% in 2028-29, its lowest level since 2001.

With regards to Gross Domestic Product, or GDP, the Office for Budget Responsibility (OBR) forecasts that the UK will grow 0.8% this year, with growth ticking up to 1.9% and 2.2% in 2025 and 2026, respectively.

NICs cut but threat of fiscal drag remains

Pre-Budget rumours pointed to a cut in personal taxes, with early reports suggesting income tax was on the chopping block. But due to smaller-than-expected headroom, the chancellor has decided to cut employees’ and self-employed national insurance contributions (NICs) for the second time in a matter of months.

The main rate of employee Class 1 NICs will drop from 10% to 8% from April. In addition to the 2-percentage point cut that was introduced on 6 January, the chancellor claims the combined reduction will save the average employed worker £900 a year.

Meanwhile, the main rate of Class 4 NICs, paid by self-employed workers on profits, will drop from 8% to 6%, also from April. Hunt claimed the average self-employed worker on £28,000 will save £650 from the new tax year.

The cuts to NICs may help put some extra pounds in workers’ pockets, but frozen tax thresholds, otherwise known as fiscal drag, will offset these reductions over the coming years.

Once frozen tax thresholds are factored in, both the lowest and highest earners still face a higher tax burden, as the table below shows.

British ISA launched

There was positive news for some savers after Hunt announced the government will launch a British individual savings account (ISA), to encourage investment in UK businesses.

The policy will give savers an extra £5,000 a year to invest in UK-listed companies and shelter their savings from tax, which will be separate to the current £20,000 allowance. For more detail about how this will work and what it means for you, check out this excellent article by interactive investor’s Collectives Editor, Kyle Caldwell.

Child benefit reform plus consultation in the works

Parents with young children received a boost after the chancellor decided to shake up the child benefit system.

Child benefit can provide valuable income source for many parents, but there is a catch.

At present, for every £100 one parent earns above £50,000, they’re hit with a 1% charge on child benefit payments.  This is called the High-Income Child Benefit charge.

Once earnings hit £60,000, child benefit is completely wiped out. For a family with two children, the lost sum equates to £2,075 a year.

However, Hunt confirmed that from April, the earnings threshold will rise to £60,000, while the top of the taper will increase to £80,000. The chancellor said that around 500,000 families with young children will save an average of £1,300 a year.

What’s more, the government will consult on moving the High-Income Child Benefit charge to a household income system by 2026, which should make things fairer.

Under the current system, a couple who each earns £50,000 swerves the charge. But if one earns £60,000 and the other nothing, they would they effectively lose child benefit, even though household income is £40,000 less.

Government presses on with ‘pension pot for life’

Despite opposition from some quarters, the government has confirmed plans to push on with its ‘Pension pot for life’ consultation. This will allow you to ask your employer to pay into a pension of your choice, instead of being forced to join your company’s scheme.

In the red pages, the government said it “will undertake continued analysis and engagement to ensure that this would improve outcomes for pension savers, and build on the foundations of reforms already underway, including the Value for Money Framework”.

Non-dom tax status scrapped

Speculation grew before the Budget that the government would axe non-dom tax rules to free up some cash to fund further tax cuts should the Conservatives win the coming election. And these rumours proved true.

From April 2025, non-domiciled individuals (UK residents whose permanent home is outside the UK) will not be required to pay tax on foreign income and gains for first four years of residency, though will pay the same tax as other UK residents once this period has expired.

Hunt said the measure is expected to raise £2.7 billion a year by the end of the forecast period.

CGT cut for landlords

It was a Budget light on surprises, but one exception was the decision to reduce the top rate of capital gains tax (CGT) on sales of second homes from 28% to 24%.

This is still higher than the 20% top rate of CGT that you pay when selling other assets, such as investments held outside of tax wrappers, but will help thin the tax bills of landlords when the time comes to sell up.

On the subject of landlords, Hunt announced that multiple dwellings relief will be abolished from June “after showing no evidence of promoting investment in the private rented sector". This will raise £385 million a year.

In addition, the furnished holiday lettings tax regime will be abolished from April 2025, “raising £245 million a year while making it easier for local people to find a home in their community,” according to gov.uk.

Fuel and alcohol duty frozen

Elsewhere, Hunt extended the alcohol duty freeze until February 2025, with 38,000 pubs set to benefit. While fuel duty, as well as the 5p cut, will remain in place until March 2025, saving the average driver £50. The chancellor claims these two measures will reduce headline inflation by 0.2 percentage points, but are expected to cost the Treasury around £27 billion over the next five years.

VAT boost for businesses

There was good news for small business as Hunt announced the VAT registration level is being raised from £85,000 to £90,000 from 1 April, the first increase in seven years. However, this was below what many had expected and indeed hoped.

The policies that didn’t make the cut

Stamp duty on UK shares: Critics of stamp duty on UK shares urged Jeremy Hunt to bin the tax at this year’s Spring Budget, particularly as it doesn’t apply to foreign shares or funds. There are concerns that stamp duty may disincentivise investors to trade UK-listed companies, creating knock-on effects for the UK economy. However, Hunt has left the current system unchanged.

Income tax: The chancellor’s decision not to cut income tax mean that retirees won’t receive an extra boost on top of the triple lock from April, while savers and landlords miss out too.

No U-turn on CGT and dividend allowances: Hunt also resisted calls to row back on the decision to halve the capital gains tax (CGT) and dividend tax allowances from April, meaning they will fall to £3,000 and £500, respectively.

Investors with holdings outside of tax wrappers should therefore tread carefully from next month onwards and consider using pensions and ISAs where appropriate.

Inheritance tax (IHT) reform absent: IHT is always a hot topic, but things really heated up before last year’s Autumn Statement, as reports suggested the government had plans to either abolish the tax or raise the threshold before it becomes payable.

However, it was a notable absentee at last year’s final fiscal event, and again at the Spring Budget. Could it be held back for the Tory Party’s election manifesto? Quite possibly.

First-time buyers:Housing minister Michael Gove hinted to The Times in late-December that the Tories could reduce up-front costs for first-time buyers to help them get a foot on the ladder.

Budding homeowners have faced increasingly higher hurdles in the past couple of decades due to house prices vastly outstripping wage increases, and more recently due to higher borrowing costs.

But there was no extra support for first-time buyers at the Spring Budget. The idea of 99% mortgages had been floated in recent weeks, but this failed to make the red pages. The chancellor also chose not to extend the stamp duty cut, or tinker with the Lifetime ISA.