Spring Budget 2024
Chancellor Jeremy Hunt may have used the theatrical setting of Budget day. He paved the way for an election, as he unveiled significant tax and spending proposals.
The intricacies of his written plan have the potential to greatly affect your financial situation. Therefore, it is important to understand how his proposals will affect you.
Reduction in National Insurance planned
To appeal to the public, the chancellor announced a reduction in the National Insurance (NI) rate. This is for 27 million workers in the UK. A specific portion of an individual’s income from their job is taken out as NI.
According to available data, January marked the initial decrease in Class 1 National Insurance. First for workers since at least 1975, and potentially the first ever. A mere three months after, there will be another reduction.
Currently employees with annual salaries ranging from £12,571 to £50,270 will be taxed at 10% for their earnings. (Previously 12% before January) and 2% for earnings above that. The chancellor announced that this percentage will decrease to 8% in April.
Investment company’s show an individual with a yearly income of £25,000 will now be able to save an extra £249 per year. This is due to the most recent change. In comparison, those with higher incomes will see an increase of £754 in their annual take-home pay.
Potentially, self-employed individuals were initially set to experience a reduction. This was in Class 4 National Insurance contributions from 9% to 8% on earnings between £12,570 and £50,270 in April. However, this rate will now be further decreased to 6%.
However, an increase in the number of individuals will result in a higher amount of tax being paid.
The current government policy has resulted in the freezing of income tax thresholds since 2021. This freeze will continue until at least 2028. As a result, any increase in income could potentially push individuals into a higher tax bracket. Or result in a larger portion of their income being taxed than initially anticipated.
The thresholds are anticipated to increase proportionally with prices – thus, economists note that this has resulted in a £40bn tax increase.
According to the official forecaster of UK, the Office for Budget Responsibility (OBR), the policy will result in an estimated increase. This is for 3.7 million individuals paying income tax. Along with 2.7 million individuals moving into the higher income bracket by 2028.
According to the Institute for Fiscal Studies, implementing both the 4p cut in NI and the threshold freezes in 2021 would result in a situation where only individuals earning between £26,000 and £60,000 per year will see an improvement in their financial situation in the upcoming year.
There will be an increase in other taxes
Several councils are dealing with significant financial strains, causing most of them to consider reducing local services. Except for Scotland, where it will remain frozen until 2025, they will increase council tax in April.
English councils must make a decision by 11 March regarding the extent to which they will raise taxes. Those responsible for social care have the option to raise council tax. This could be by a maximum of 4.99%, without the need for a referendum. Other councils have the authority to increase taxes by up to 2.99%.
Certain areas, like Birmingham, have been granted government authorization to raise their bills by over 5%. Resulting in a 21% increase in council tax over the span of two years (https://www.bbc.co.uk/news/uk-england-birmingham-68483264).
The suggested rises range from 3% to 16% in Wales and from 4% to almost 10% in household rates in Northern Ireland.
The value added tax (VAT) remains unaltered. This is a tax that is applied to the majority of purchases of goods and services.
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Expansion of Child Benefit to Include Additional Families
The threshold for the removal of child benefit has been increased to a higher income level.
Instead of the current system where child benefit is reduced for families with at least one parent earning over £50,000 annually. The threshold for reduction will now be at £60,000. Furthermore, the benefit will be completely removed for families with an annual income of £80,000. This is instead of the previous threshold of £60,000.
The value of the benefit is £24 weekly for a single child and £15.90 for each extra child. These figures are set to increase to £25.60 and £16.95 per week respectively in April.
The government predicts that 485,000 households will receive an average of £1,260 in child benefit by 2024-25 due to this change. Additionally, it is expected that 170,000 families will be exempted from paying back any amount.
The goal is to transition to a household income-based system by April 2026, rather than one based on individual income.
Financial Assistance for Living Expenses
Assistance provided to individuals receiving benefits, retired individuals, and those with disabilities has served as a crucial support system for navigating the challenges of steep costs and expenses.
There were no announcements made for additional cost-of-living payments, as the cost of household gas and electricity decreased in April.
The Household Support Fund received additional funding, providing assistance to those in need for essential expenses or a comfortable shelter. Originally set to expire this month, it will now be extended for another six months. Councils had requested for a two-year extension.
The cost of £90 associated with debt relief orders, a program that assists individuals in eliminating their debts, will be eliminated. Although some individuals had previously received funding for this. Additionally, the timeframe for individuals receiving universal credit to repay budgeting loans has been extended from 12 to 24 months.
Extension of Fuel Duty Cut Planned
Motorists are required to pay a tax known as fuel duty when purchasing fuels like petrol and diesel.
The freeze on fuel duty that has been in place since 2011 is set to continue. It was announced that the 5p-a-litre fuel duty cut, originally scheduled to expire this month, will be extended for another year. The current rate of 53p per litre will remain unchanged. Resulting in an estimated savings of £50 for the average car driver in the upcoming year.
Increase in Cost for Vaping and Smoking
In the future, the so-called “sin taxes” will increase. This increase will also apply to vaping products as a new duty.
As of now, vaping products are already under the purview of value added tax (VAT). However, starting from October 2026, they will also be subjected to an additional levy. This will coincide with an increase in the duty on cigarettes.
The increase in drinking expenses will not occur since the suspension on alcohol taxes will be prolonged until February of the following year.
Savings Scheme for British Citizens
Savers will now have access to a tax-free Individual Savings Account (Isa). This is allows them to invest their money directly into British businesses.
A new option for savers will soon be available, to save up to £5,000 per year in the British Isa. In addition to the current allowance of £20,000. The specific date for this allowance has not yet been disclosed.
In April, NS&I will introduce British Savings Bonds, allowing savers to secure their funds for a period of three years. The specific interest rate has yet to be determined.
Revisions to property tax policies
Holiday lets are already being cracked down on by the government.
Furthermore, the chancellor has announced plans to eliminate multiple tax incentives currently available to owners of vacation rentals. This includes allowances for furnishings and similar expenses, which will no longer be in effect.
In April, the property capital gains tax rate will decrease from 28% to 24%. Resulting in advantages for individuals who are selling a property that is not their primary residence (https://www.gov.uk/tax-sell-property).
Abolishment of Non-domiciled Tax Status
This is utilized by individuals residing in the UK, whose primary residence for taxation purposes is located outside of the country.
Individuals who are not considered as permanent residents are only subject to UK taxes on income earned within the UK. However, this classification will be eliminated by April 2025and a new system will be implemented. This change could potentially result in an increase in UK taxes for these individuals, providing the government with additional revenue.
Familiar Knowledge: Advantages, Retirement Plans, and Salaries
In the fall, the chancellor declared that various benefits, including universal credit, would increase by 6.7% in April.
In Northern Ireland, benefits are completely delegate. However the modifications will be comparable to those implemented in the rest of the United Kingdom.
In April, the state pension will increase by 8.5%, as stated before. This will result in a higher value of the pension.
- Individuals who reached state pension age after April 2016 are entitled to a full, new flat-rate state pension of £221.20 per week.
- Those who reached state pension age before April 2016 can receive a full, old basic state pension of £169.50 per week.
Employers will be required to pay a higher National Living Wage of £11.44 per hour for workers over the age of 23 in April – this is an increase from the current rate of £10.42 per hour. This change will also result in higher wages for younger workers.
