This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice please consult us here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
The Spring Budget of 2024 brought a range of key changes which bear upon UK households (not least the “headline” measure to cut National Insurance).
Below, our Padiham financial advisers elaborate on our recent Budget Special newsletter to explain, in more detail, how readers’ financial plans may be impacted.
We hope these insights are helpful to you. Please get in touch for more information or to discuss your own financial plan with us.
Tax revenue to rise
Tax revenue is expected to rise to 37.1% of GDP by 2028/2029. Already, the UK faces its highest tax burden since the Second World War. So, forecasts of this burden weighing more heavily in the coming years will, understandably, be unwelcome to many.
A significant reason for this forecast is the continuation of income tax “freezes”. The tax-free Personal Allowance, for instance, is expected to remain at £12,570 for the coming years. Also, the upper threshold of the 20% Basic Rate is planned stay at £50,270 until 2025-26.
In that time, many workers will see their earnings rise (the same for those receiving the State Pension). Indeed, between October to December 2023, annual growth for regular earnings (excluding bonuses) was 6.2%. If such trends continue, many people are likely to find themselves inadvertently entering a higher tax bracket.
With careful financial planning, however, it may be possible to dampen the impact on your own finances. For instance, a “salary sacrifice” scheme with your employer could divert future pay rises towards pension contributions-instead of receiving more income which could push your earnings into the Higher/Additional Rate.
National Insurance to be cut
The Chancellor was keen to highlight that employee National Insurance (NI) contributions will fall from 10% to 8% as of April 2024. This follows a previous cut of 2% last November (from 12% to 10%). For self-employed people, the main rate of Class 4 NI contributions will reduce from 9% to 6% from 6 April 2024.
Rough estimates show that someone earning around £35,000 per year could save £450 per year from these measures. However, overall UK workers will be no better off.
The Office for Budget Responsibility (OBR) reveals that the extra income tax paid by the working population, due to frozen thresholds, is likely to exceed the overall tax savings from cutting NI.
However, this is not to say that you, the individual reader, will be worse off. This depends on your unique financial circumstances. Seek independent financial advice for more information.
The “expansion and contraction” of investment allowances
The 2024 Spring Budget did not make any attempt to reverse plans to reduce various tax-free allowances that individuals have long enjoyed.
As of 2024-25, the Annual Exempt Amount is now £3,000 per year for tax-free capital gains (it was previously £6,000 in 2023-24). The tax-free dividend allowance has also fallen from £1,000 per year to £500.
This will naturally make it more difficult for many investors to achieve tax-free investment returns. Yet the Spring Budget also announced an “expansion” of one key area of tax-efficient investing – ISAs.
The proposed “British ISA” is planned to allowed an investor to invest £5,000 per year into British stocks, tax-free and in addition to their standard £20,000 ISA allowance. However, there are issues still to be ironed out and we may not know more about this until the summer of 2024.
Childcare measures
April 2024 marks the arrival of a new scheme which many young parents (and prospective parents) will want to take note of 15 hours of free childcare can now be claimed for 2 year olds.
If your child is the appropriate age, then you may qualify if your “adjusted net income” (ANI) is between £8,670 and £100,000 a year. If you’re in a couple, both of you must have an ANI within these boundaries to qualify.
Moreover, the earnings threshold for starting to lose Child Benefit have been increased from £50,000 to £60,000 in April 2024. The benefit will be completely lost at £80,000 rather than the previous £60,000.
These changes will be welcome to many households. However, the UK is still classed at the third-most expensive country in the world for childcare. Consider seeking financial advice to explore your options for making your finances stretch to their full potential.
Closing thoughts
There are other key announcements which we could cover if we had more time. For example, the capital gains tax rate (CGT) on property sales has reduced from 28% to 24%. Plans to increase alcohol duty by 3% in 2024 have also been scrapped.
As we conclude, we encourage readers to take stock of their financial plan and ensure that sound principles are being followed. Check your financial “safety net” (e.g. life insurance policy) and emergency fund. Review your pension(s) and investments with a financial adviser to ensure that you are still moving towards your long-term goals.
Invitation
If you are interested in starting a conversation about your own financial plan or investments, then we’d love to hear from you.
Please contact us to arrange a free, no-commitment consultation with a member of our team here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
Reach us via:
T: 01282 772938
E: info@elmfieldfp.co.uk
