Despite being within a year of the next General election, this Budget contained relatively little that affects financial planning. The two much-trailed measures attracting headlines, the reduction of the National Insurance rate and the British ISA, whilst welcome, were both relatively insignificant and are unlikely to affect any voting intentions. As always, our commentary below focusses on measures of relevance in financial planning for clients and misses out all the other announcements which are available in the more detailed summary available here.
Unlike last year, there is no discernible theme to this Budget. The NI reduction will quickly be overtaken by fiscal drag from the lack of updating of tax thresholds, even after a year of high inflation, while last year’s “growth” theme has not been followed through as post-Budget comments from business leaders confirm.
National Insurance
The 2% reduction for employees and the self-employed is welcome. The employer’s rate is unchanged so there will be no benefit for those over retirement age. There is no financial planning significance, but it is thought to be part of a long-term plan to do away with National Insurance altogether – a simplification that we would welcome.
British ISA
An extra ISA allowance of £5,000 for investment into UK assets is also welcome but a modest measure for investors and of almost no significance for the UK stock market because so few investors contribute the full current allowance of £20,000. We will be advising those of our clients who do to make use of this extra amount if they can unless it is hedged around with excessive complications. It need not change the portfolio balance as most existing ISAs contain a reasonable weighting to UK holdings so it would simply mean a transfer of the relevant holdings. It should be available for the 2025-26 tax year.
Holiday lets
The tax breaks for short lets are to cease from April 2025, helping to shift the balance of advantage between short lets and longer ones in the hope of helping holiday destinations avoid becoming Airbnb deserts. Few details are yet available but tax allowances for assets used in a holiday let business will cease as well as the mortgage interest offset. Whether the income will continue to be treated as “earned” for pension purposes is not clear.
Another property related change is the ending of stamp duty relief on multiple purchases – the “granny flat” loophole called the Multiple Dwellings Relief – effective from 01/06/2024.
Capital Gains Tax on residential property
This is to be reduced from 28% to 24% from 06/04/2024, some comfort for those who decide to sell their holiday lets.
Non-doms
Another measure that has been expected for years is the removal of the special tax status of those not domiciled in the UK but resident here. The period of exemption of their overseas income from UK tax is to be shortened to four years with various transition provisions. Whether the changes will extend to the treatment of their assets for IHT and CGT purposes remains to be seen after a period of consultation.
IHT Grants
Not in the Budget but announced at the same time were plans to make the obtaining of a grant to help pay the IHT due on an Estate before having access to Estate assets, easier. Until now, executors have had to show that they have tried all other means to raise funds, including applying for commercial loans. Details awaited.
Child benefit threshold
The income level above which this starts to taper is rising from £50,000 to £60,000. The planning required to take advantage of this is not easy but some parents may be able to benefit.
NatWest share sale
The intention to offer government-owned shares to retail customers at a discount was confirmed. Whether the discount will be large enough to make the purchase of a dull share worthwhile remains to be seen. The British ISA will not be ready in time.
If there are any matters you would like to discuss in relation to the Budget, or any aspect of your financial planning, then please do not hesitate to get in touch.
This note is intended as a summary only and should not be regarded as a specific or personal recommendation. The Financial Conduct Authority does not regulate tax advice.
All measures remain potentially subject to change until enacted into legislation.