The recent budget 2024 is shaping up to be one of the most dramatic we’ve seen for a number of years with substantial tax cuts. The big question is how will this affect you? We summarise some of the main highlights.
Child Benefit Limit Overhauled to £60,000 from £50,000
Amazing news for young families with children paying Child Benefit charges. Previously, if you earned £50,000-£60,000, you would lose 1% child benefit per £100 earned. The impact of having two children means you effectively pay nearly 60% tax overall included high rate tax and national insurance.
Now the band has been increased substantially to £60,000 plus it now decreases by 1% per £200. This means you would need to earn £80,000 to lose all of your Child Benefit. The impact means you are less penalised as you earn over £60,000. That being said, remember mitigating the loss of Child Benefit is still important.
National Insurance Tax Cuts of 2%
National insurance was reduced to 10% from 12% for basic rate taxpayers recently, but we are seeing a further drop of an additional 2% in this Spring Budget. What this means is someone earning:
£30,000 will save a further £348,60 (£697.20 saving in total)
£50,000 will save a further £754 (£1,580 saving in total).
This will make a substantial difference to disposable but you should note the income tax bands such as the personal allowance and basic rate threshold are frozen, so many of us can expect to become 40% taxpayers especially in a high inflation environment.
Self employed National Insurance down to just 6%
Following the decrease in National insurance, this will apply to the self employed, meaning a further 2% reduction (including 1% earlier this year). By paying only 6% National Insurance, this effectively creates a very attractive situation for those debating starting a limited company or being self employed.
Depending on the size of your earnings, you could be better off remaining self employed. As an example:
Profits of £50,000 would leave you with:
£38,099.88 through a LTD Company paying dividends after 19% corporation tax and then 8.75% dividend tax.
£40,268.20 as Self Employed after 6% national insurance and 20% basic rate tax.
The above factors in the personal allowance of £12,570 and dividend allowance of £500.
Self employed National Insurance Level 2 Contributions to be scrapped
As of the new tax year, Class 2 National Insurance is obsolete and eventually will be permanently scrapped, saving a further £179.40 per year (£3.45 per week).
VAT threshold increased from £85,000 to £90,000
This is good news for growing businesses worried about having to start registering for VAT, giving a bit more headroom before having to deal with the various complexities of submitting VAT returns.
Property Capital Gains tax reduced to 24% for high earners
A reduction in capital gains tax on 2nd property sales is great news as a sale can often create a huge tax liability. The capital gain can push you into a higher tax bracket, thus a lower tax rate means you can keep more fo your profits when selling.
Note that residential sales of your main home do not incur capital gains tax, and the basic rate tax still sits unchanged at 18%.
The UK ISA Is Coming
A mysterious UK ISA is expected to land this year, which has its own additional allowance of £5,000. This account should provide tax free savings which is ideal for high earners who save more than their ISA limit or who hold substantial savings.
Due to high interests, many have suffered with higher tax bills. Holding over £20,000 at 5% interest can already breach the savings threshold for a basic rate taxpayer, or £10,000 for a high rate taxpayer. We have little other information on the account for the time being, except that the expectation is it will be focused on UK based investments.
As to whether it succeeds or flops like the Lifetime ISA remains to be seen.
Conclusion
Lots of exciting and positive changes made by Chancellor Jeremy Hunt accounced in a much anticipated Spring Budget. Whilst its not quite the increase in the personal allowance and basic rate threshold that many hoped for, this provides welcome tax relief and permanent cuts that should affect most people in society.
Many other changes were also announced, such as a windfall tax, changes to fuel duty, non-dom tax status abolotion and other measures.
Note that the above should not constitute financial advice, you should speak to your accountant or financial advisor before acting on any information provided. Investments can rise and fall in value and you may get back less than expected.
