Budget March 2024: launch of a new British ISA
- Shunil Roy-Chaudhuri, Personal Finance and Investment Writer
- 06 March 2024
- 8 mins reading time
In November 2023, Chancellor Jeremy Hunt’s autumn statement sought to boost economic growth, but today’s budget was delivered against the backdrop of a recession. The focus now is on long-term growth.
To support workers and businesses, Hunt will reduce national insurance rates from 6 April 2024. The chancellor reiterated his belief that such reductions can incentivise working people and so support the economy.
The chancellor brought the national insurance rate for employees down from 10 percent to 8 percent. For the self-employed, he reduced the Class 4 national insurance rate from 8 percent to 6 percent. It is estimated that the saving from this change will be worth around £450 a year for someone receiving an average salary.
Richard Allan, Financial Planning Director at Schroders Personal Wealth, commented: ‘The chancellor also said his long-term ambition is to continue to cut national insurance. He hinted that the system of income tax and national insurance was too complex and could be changed.’
Hunt also announced a new ‘British ISA’ to encourage investment in UK companies. This ISA offers a specific £5,000 tax-efficient allowance for investment in UK equities (shares), in an effort to boost investment in domestic companies. Richard added: ‘The British ISA will appeal to those who currently make full use of their ISA allowance, as it will effectively raise the annual ISA investment limit from £20,000 to £25,000. However, we usually recommend investing in different types of assets and different geographical regions, not just UK equities.’
Regarding child benefit, the chancellor plans to change the system by April 2026 to be based on household income as opposed to one parent’s earnings. This benefit is currently reduced on a tapered basis when just one parent earns more than £50,000. He said he will consult to have a new household-based system set up by April 2026. In the meantime, from this April, the threshold will be raised to £60,000.
Additionally, the capital gains tax on residential property sales was reduced from 28 percent to 24 percent. Hunt also extended for another year the 5p-a-litre fuel duty cut and dropped an inflation-linked rise in the duty.
Reduced room to cut taxes
The chancellor had less room for overall tax cuts than last November. According to independent analysis from the Office for Budget Responsibility (OBR) Hunt had a buffer of £13 billion to work with while, in November 2023, the buffer was £30 billion (1).
Because of this, these tax cuts had to be at least partially offset by tax increases elsewhere. One of the areas for tax increases was for ‘non doms’. These are foreign nationals resident in the UK but not domiciled here for tax purposes. Before, they could earn money from capital abroad without paying UK tax on it for up to 15 years, as long as they didn’t bring any income or gains from this capital into the UK.
The chancellor said this system will be abolished from April 2025. From then on, non doms will pay no tax on overseas income and gains for the first four years of their UK residency. After that, they will pay the same tax as other UK residents on their worldwide income and gains. He added that there will be transitional arrangements for non doms benefiting from the current tax regime.
In addition, the chancellor extended the 35 percent windfall tax charge on oil and gas companies’ profits until 2029. And he scrapped the furnished holiday lets regime, which gives extra tax reliefs on properties rented to holiday-makers. These include allowances for items such as furniture, equipment and fixtures. He also announced increases in duty on business class air travel.
Technology investment for the public sector
But this budget wasn’t all about taxation. Hunt announced investments in a range of technology reforms aimed at boosting public sector productivity. These include £170 million to save administrative time in the justice system through digitisation and new software.
Hunt also introduced measures to get defined contribution pension funds to disclose how much they invest in the UK. He hopes this will encourage pension funds to increase their domestic investments. But he didn’t announce any measures to mandate UK pension funds to increase the amount they invest domestically.
The chancellor has characterised his budget as ‘prudent’ and ‘responsible’ (2), emphasising his focus on long-term economic growth. But the OBR has projected modest UK growth of only 0.8 percent for this year, 1.9 percent for 2025, and 2.2 percent in 2026.
Steve Mann, Head of Investment Specialists at SPW, said: ‘Jeremy Hunt’s net fiscal giveaway of £13.9 billion in 2024/25 may help lift the economy out of its mild recession before an election later this year.’
Even so economic challenges look set to remain for the next statement from the chancellor, whoever that might be. Challenges also remain for UK taxpayers, who the Institute for Fiscal Studies estimate are on course to face record overall tax levels by the 2028/29 tax year (3).
Sources
(1) Financial Times (www.ft.com), ‘Jeremy Hunt struggles to include big giveaways in his Budget’, 4 March 2024.
(2) BBC (www.bbc.co.uk), ‘Sunday with Laura Kuenssberg’, 3 March 2024.
(3) Financial Times (www.ft.com), ‘UK tax burden to hit record high regardless of Budget, analysis finds’, 27 February 2024.
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