Although the UK has the lowest debt in the G7, there was no mention of the potential increased costs for servicing the existing debt due to rising interest rates. It was therefore no surprise the government has looked at revenue streams and new ways in which this could be produced or increased to fund the ambitious spending proposals.
This combined with reduced morale within the UK driven by the cost-of-living, energy crisis and ongoing instability within the government, there has been a perceived increased demand for social spending to help struggling households and to save those industries which are struggling.
The government have clearly tried to strike a balance between trying to increase revenue without diminishing morale further and the salient points are as follows.
In a bid to promote domestic investing and ‘reform the ISA system’ the annual allowance has increased by £5,000 to £25,000 provided the additional £5,000 is invested exclusively in the UK.
Traditional ISAs currently provide tax free returns and can be accessed without tax implications, the trade off for this is that the allowance has been restricted to £20,000 per year.
While this is a welcome increase to the allowance, the mechanisms around this need to become clearer.
There are a number of immediate questions that come to mind.
While ISAs have historically been simplistic, this has the potential to cause some confusion for investors, but will no doubt start to feature within financial planning more, provided investors are happy with the concentration risk. We will await further details being provided following the consultation that will take place following the Budget announcement.
The Chancellor announced that the National Savings & Investments (NS&I) will launch British Savings Bonds, increasing the savings opportunities available to clients to save for the longer-term.
British Savings Bonds will be new three-year fixed-rate Issues of NS&I’s Guaranteed Growth Bonds and Guaranteed Income Bonds, which were last on sale in 2019. They will offer savers a guaranteed rate over three years for investments between £500 and £1 million. Like all savings from NS&I, money invested will be 100% secure, backed by HM Treasury, and invested back into supporting the UK.
The Bonds will go on sale in early April and the intention is for them to be available for an extended period of time. The interest rates will be announced in due course and are intended to be priced mid-market in relation to similar products, in line with NS&I’s requirement to balance the interests of savers, taxpayers and the broader financial services sector.
A further 2% reduction in National Insurance will come into force in April for employees in a pledge to reduce the double taxation on income and promote the rewards of hard work over the longer term.
The Chancellor said, this is set to be an extra £450 in the pockets of those on an average salary. This is the change that will have the most impact for the majority of people and it is in an attempt to reduce the strain on UK households and a potential carrot in an election year.
There were several property specific changes within the Budget announcement with the first being the furnished holiday lets (FHLs) which is set to be abolished from April 2025. FHLs currently benefit from a favourable tax regime for short term lets provided they have met the set-out criteria. This change is estimated to increase revenue by £300m.
The reliefs around stamp duty on multiple dwellings are also being removed which was briefly mentioned.
Currently residential properties which will not qualify for the main residence relief are subject to tax on the gain when sold. This type of investment is subject to a higher rate of capital gains taxation with a rate of 18% being applied to gains falling within the basic rate and 28% applied to higher and additional rate gains.
More positively, the higher rate is being dropped to 24% in an attempt to stimulate property sales which the Chancellor anticipates obtaining more revenue from due to the higher level of transactions. This in turn could make more housing available for first time buyers with the other changes stimulating revenue for the UK.
This is a move to modernise the current rules with the Chancellor stating it will increase revenue by £2.7 billion per year in what looks to be the biggest revenue generating change within the Budget at first glance.
Currently, ‘non doms’ can live in the UK all year round but do not pay tax on foreign income in the way a UK tax resident would for up to 15 years.
The Chancellor has abolished the current rules and proposed that from April 2025, new arrivals in the UK, for the first four years will continue to pay no tax in accordance with the current rules but after this period, the tax regime which is applied to UK tax residents will apply thereafter.
Transitional rules will come in prior to April 2025 and this will clearly boost UK revenue. This could be considered ‘low hanging fruit’ in terms of a positive policy change as this regime has been historically controversial, which, was most recently brought to the forefront by Rishi Sunak’s wife’s nom dom status.
The threshold from which businesses will have to register for VAT has increased by £5,000 to £90,000. This is a tax which has remained static for several years but has been increased to help smaller businesses with a continued focus on promoting growth in the UK.
In an attempt to increase the ‘fairness’ within this benefit, the threshold is set to increase to £60,000 with the top tier increasing to £80,000. Collective household incomes will be obtained rather than individual incomes which will be the mechanism that helps facilitate the changes to from the current regime. This is in a pledge to help parents enter the workforce and ‘reward hard work’.
There was a clear strategy to increase revenue but not negatively impact household incomes with an additional focus on social spending and improvements within the public sector. All of which is likely to be received more positively by the general public.
There was an additional focus on UK savers within the Budget with the savings bond introduction and increased ISA allowance which will open up opportunities within financial plans.
While we wait for the changes to become policy and clearer in their implementation, if you have any questions on how these changes may impact you, do not hesitate to contact us.
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