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.
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 is to push forward with plans to give members more choice over where they build their workplace pension pots by “exploring” a lifetime pension pots model.
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.
Reporting by Emma Agyemang, Rafe Uddin, Martha Muir, Josephine Cumbo, Laura Hughes, Joshua Oliver and Yasemin Craggs Mersinoglu
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