What the Budget means for your money

With a general election looming, chancellor Jeremy Hunt was under pressure to deliver sweeteners for voters, notably what he described as “helping families with permanent cuts in taxation”, without appearing fiscally irresponsible.

He confirmed the heavily trailed 2p cut in national insurance contributions, a shake-up of the “non-dom” tax regime and the creation of a “British Isa” to encourage investment in UK-listed companies.

However, the overall tax burden as a proportion of gross domestic product will rise to 37.1 per cent in 2028-29 — the highest level since 1948, according to the Office for Budget Responsibility, the independent fiscal watchdog.

Here is how the key measures will affect your personal finances:

Tax

The decision to cut NICs by 2p will benefit about 27mn employees and repeats an identical measure announced in last year’s Autumn Statement.

Hunt also announced a 2p cut for self-employed people, with the main rate of NICs for the self-employed falling from 8 per cent to 6 per cent.

Analysts from AJ Bell calculated the combined NIC cuts would mean savings of up to £1,508 a year for those earning £50,270 or more and almost £900 for someone earning £35,000 a year.

But tax experts said that because the chancellor did not unfreeze the personal tax thresholds, the cut would not have that much impact on people’s personal finances.

The government has frozen several allowances and tax thresholds since April 2022 and plans to keep them unchanged until 2028. This increases tax receipts as rising wages tip ever greater numbers of workers into the tax system or on to higher rates, a phenomenon known as “fiscal drag”. At last year’s Autumn Statement, the OBR, the independent fiscal watchdog, projected this measure alone would raise an extra £44.6bn in annual tax revenues by 2028-29.

“While a cut in taxes will for some be a needed boost, it hardly turns the dial much considering we are dealing with a historic tax burden at present,” said Rachael Griffin, a tax and financial planning expert.

While some Conservative MPs had been lobbying for a cut in income tax, experts said cutting NICs had the advantage of costing the Treasury less and rewarding workers.

Victoria Price, managing director at Alvarez & Marsal Tax, said: “Politically, the chancellor needed to cut something. From a Treasury perspective, a national insurance cut makes the most sense as it directly benefits workers and offers incentives for those earning a living.”

Meanwhile, Hunt announced far-reaching reforms to the “non-dom” tax regime, scrapping the two-century-old concept of domicile, and changing when individuals receive the tax break.

The measure is the biggest shake-up to rules that date back to 1799 and were originally intended to protect colonial investments.

The chancellor said he would modernise the rules by replacing the “non-dom” system, replacing the concept of domicile in tax with a residence-based system.

New arrivals will not pay UK tax on non-UK income or gains for the first four years, but after that will pay the same tax as other UK residents.

The regime will start from April 2025, and would raise £2.7bn in taxes each year, the chancellor said.

Pensions

Poorly performing workplace pension schemes are to be banned from taking on new business under plans confirmed in the Budget.

Measures to come into force in 2027 will see pension funds — with millions of savers — required to publicly compare their performance data against rivals.

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Under the proposals, regulators will be given powers to stop poorly performing retirement funds from taking on new workplace pension business.

Pension experts said the chancellor’s plans to require defined contribution schemes to publicly compare performance data against competitors would “pull back the curtain” on pensions.

“Members and employers will be given much greater transparency on how their scheme is performing against others in the market,” said Philip Smith, defined contributions director at TPT Retirement Solutions.

In a further move aimed at boosting the UK economy, the chancellor confirmed plans for pension funds, from 2027, to disclose their UK asset allocations, in addition to performance data and charges.

Separately the government said it would continue to ‘explore’ reforms that would allow workers to have a pension ‘pot for life’. The change is aimed at reducing the proliferation of pension pots in the system when workers change jobs but experts said the government appeared to be pulling back on the proposal.

Property

Hunt announced sweeping changes to property taxation, mostly aimed at increasing revenue.

The government will abolish the multiple dwellings relief from stamp duty land transaction tax. The chancellor said the relief was supposed to support investment in the private rented sector but there was “no strong evidence” that it does so, and that the relief was “regularly abused”.

The chancellor also said he would abolish tax relief under the furnished holiday lets regime. The regime currently benefits some 127,000 holiday rental businesses, giving tax perks such as allowances for spending on furniture and appliances, and tax relief for mortgage payments.

The rules have been criticised for in effect benefiting second homeowners who rent their property on the side, and for encouraging landlords to convert their properties into holiday lets rather than long-term rentals, which no longer enjoy a mortgage interest tax deduction.

Hunt said he would also reduce the higher rate of capital gains tax on residential property from 28 per cent to 24 per cent because the measure would raise revenue by stimulating more transactions.

Childcare

The chancellor has raised the point at which parents are charged for claiming child benefit from £50,000 to £60,000 and the top of the taper where it is withdrawn will be increased to £80,000.

Since 2013, it has been withdrawn completely if one partner earns more than £60,000 a year.

Hunt said on Wednesday that the Treasury would look to introduce a household-based system from April 2026, adding that nearly 500,000 families would save an average of £1,300 next year.

Investment

Savers will be handed a higher tax-free allowance for investments if they plough cash into UK equities. The plan featured in a package of retail-friendly measures, including the timeline for a sale of the government’s remaining NatWest shares.

Hunt confirmed that the government would move forward with proposals for a new “British Isa” that would provide savers with an additional £5,000 tax-free allowance for investment in London-listed companies. This will be on top of existing Isa allowances.

The £20,000 tax-free Isa allowance has remained unchanged since 2017-18. It can be split between cash and other investments. No tax is payable on savings interest, dividends or capital gains, and withdrawals are not subject to income tax.

Hunt also announced that the government would also launch a new “British savings bond”, offered through National Savings & Investment.

He added that the government would start the sale of its 32 per cent stake in NatWest Group to retail investors “this summer”, having previously said he would consult on proposals in the Autumn Statement. The government had already planned to exit the investment fully by 2026.

NatWest group’s share price has fallen 13 per cent in the past year, in part following the controversy surrounding Nigel Farage’s Coutts account that led to Dame Alison Rose’s resignation as chief executive in July last year.

The lender’s shares recovered slightly this year after it posted a jump in profits for the final quarter of 2023 and appointed a permanent chief executive.

Other measures

A new tax will be levied on vapes, starting from October 2026. The government has proposed a three-tier structure, of £1 per 10ml for nicotine-free liquids, £2 per 10ml on liquids that contain the same or less nicotine per ml than an average cigarette and £3 per ml on liquids that contain more nicotine per ml than an average cigarette.

There will also be a one-off tobacco duty increase, which will preserve the “financial incentive to switch away from smoking”.

A rise in alcohol duty of 3 per cent, planned for August, has been postponed until February 2025, helping 38,000 pubs across the UK.

Hunt extended the “temporary” 5p-a-litre fuel duty cut for another 12 months, saying the average motorist would save £50 next year. The duty has been frozen since 2011.

Air passenger duty will be increased for non-economy travel.

The government also announced the reversal of rules affecting angel investment by reinstating previous eligibility criteria to qualify as a so-called high net worth or sophisticated investor.

The thresholds are expected to return to £100,000 for income or £250,000 for net assets. These had been raised to £170,000 and £430,000 respectively on January 31.

‘Non-doms who are already here will be feeling aggrieved’

Nimesh Shah, chief executive, Blick Rothenberg

The chancellor took firm aim at one of Labour’s key tax pledges by abolishing the “non-dom” tax regime — grabbing hold of the additional £2.7bn tax revenue to partly pay for his 2 per cent national insurance cut.

The archaic concept of domicile, which someone inherits from their father, will no longer be relevant. Instead, individuals moving to the UK will have a four-year tax holiday and they can freely bring their overseas monies to the UK. The new regime, which takes effect next year, will be simpler but more limited in time as non-doms currently benefit from a 15-year period where they don’t pay tax on their overseas sources.

Non-doms who are already here will be left feeling aggrieved but they will have a generous opportunity to bring money to the UK at a flat 12 per cent tax rate.

Hunt’s dramatic announcement goes against his previous assertions that such a move would end up costing the UK economy £8bn.

However, this was clearly a tactical political move to take the wind out of Labour’s sails, and there will be a concern that the government has gone too far by only having a four-year regime and losing its competitive edge compared with countries such as Italy.

‘The UK Isa should be consigned to the dustbin’

Laura Suter, director of personal finance, AJ Bell

Increasing investment into UK companies is a laudable aim. Unfortunately, the proposed “UK Isa” is nothing more than a gimmick that’s extremely unlikely to make any tangible difference to British business.

A tiny minority of Britons use their full £20,000 Isa allowance each year — these are the only people who would see any benefit from the additional allowance the UK Isa will create. Given the UK stock market is worth over £2tn, any additional investment in UK plc created by a new Isa will be a drop in the ocean.

What’s more, creating a new Isa adds unwelcome confusion to the system. Our research shows that complexity puts people off saving and investing for the long term, so throwing another Isa into the mix, alongside the six others that already exist, will inevitably add to this problem.

This is particularly disappointing given this same government announced a series of reforms in the Autumn Statement aimed at simplifying the Isa system — albeit marginally.

Given there is a three-month consultation, there is every chance the UK Isa won’t see the light of day before a general election. With Labour committed to Isa simplification, let’s hope this daft proposal is consigned to the dustbin.

‘For heavy property borrowers, this could drive a decision to sell’

Christine Ross, client director and head of private office — north, Handelsbanken Wealth & Asset Management

Like most of today’s announcements the abolition of the furnished holiday lettings regime was well trailed. Under these rules property rental was treated as a trading business as long as it met certain criteria.

The income generated was treated as earnings and helpfully could be used to support pension contributions. Income from an ordinary buy-to-let property — regarded as investment income — does not qualify. Particularly attractive was the eligibility for Business Asset Disposal Relief, where capital gains of up to £1mn were charged at an effective tax rate of 10 per cent.

A particular hit to owners of furnished holiday lets will be the treatment of loan interest. They will no longer be able to deduct fully the cost of borrowing from their rental income. They will instead be treated like all residential landlords, where a deduction limited to the basic rate of tax is given. For those who have borrowed heavily, this could drive a decision to sell. The stated intention of this measure was to increase the availability of long-term rental property for local residents. This isn’t going to happen.

The chancellor also announced an unexpected reduction in the rate of capital gains tax on the disposal of residential property from 28 per cent to 24 per cent. Notably, the basic rate of 18 per cent is not being reduced. I actually thought he was about to align with the main CGT rate of 20 per cent. That would have been an eye-opener. This measure will apply mainly to buy-to-let landlords but also to owners of second homes. The idea behind this move is that the tax reduction will act as incentive to owners to sell and in turn raise more revenue for the exchequer. Unless they were selling anyway, no way is this enough of a carrot to encourage property owners to accelerate a tax charge.

‘This Budget was neither bold nor radical’

James Henderson, co-manager of the Henderson Opportunities Trust, Lowland Investment Company and Law Debenture

The Office for Budget Responsibility’s growth forecasts confirm what we’ve been finding talking to company managements over the past few months: the UK economy is showing signs of life. Wages are rising faster than inflation now and that’s feeding through into purchasing managers’ index data and consumer confidence. Inflation hitting 2 per cent again in the coming months will be welcome as it should lead to a fall in interest rates soon, benefiting consumers with mortgages and loans and corporate borrowers alike.

As for the chancellor’s policy announcements, they are neither bold nor radical; they are moderately helpful. We knew the minimum wage was rising before the Budget. The child benefit changes add some extra money in a few more pockets. The biggest change is obviously the national insurance contribution cut because it not only leaves people with more spending power, it also encourages more people to work at a time when labour markets are tight.

Reporting by Emma Agyemang, Rafe Uddin, Martha Muir, Josephine Cumbo, Laura Hughes, Joshua Oliver and Yasemin Craggs Mersinoglu