The Chancellor, Rachel Reeves, announced the new Labour government’s much-anticipated first budget this week. With it, Reeves promises “wealth and opportunity for all”. Among plans, the Chancellor announced the government will raise taxes by £40 billion to boost vital funding for schools and the NHS – while maintaining her pre-election promise that working people won’t pay more.
We asked our Head of Personal Finance, Brian Byrnes, to explain the main highlights and how they might impact your personal finances.
Personal finance
Employee National Insurance, Income Tax, and VAT are all safe from increases in the Chancellor’s first budget. In fact, in an unexpected move, the Chancellor announced that the freeze on Employee National Insurance and Income Tax thresholds would be lifted from tax year 28/29.
However, the Chancellor confirmed that Employer National Insurance will rise to 15%. Plus, the threshold at which it is charged is to reduce from £9,000 to £5,000. This change to Employer National Insurance is set to raise £25 billion.
With a significant black hole in the public finances, the Chancellor had difficult decisions to make, but the unintended consequences of this move could be significant.
With employers shouldering more of the National Insurance burden, the worry is they could simply pass these costs on to their employees. With a higher cost per head, we could also see some employers choosing to reduce other benefits such as wage increases or even pension contribution matching.
Steps will need to be taken by the government to ensure the delivery of this measure does not end up being counter-intuitive to Labour’s commitment to building wealth for the future. There is a considerable retirement challenge in the UK, with the vast majority of people not saving adequately for later life. With the Pension Review ongoing, we must focus on the challenge of getting people to the pension pot amounts they need for a comfortable retirement.
In another surprising turn, the Chancellor said she’s taken a balanced approach to Inheritance Tax, and will extend the freeze on the threshold for an additional two years until 2030. More on this below.
Home-buying
In the world of home-buying, the Chancellor explained the Labour government will put £5 billion into building 1.5 million new homes. Plus, it was announced that Stamp Duty on second homes will rise from 3% to 5% on Thursday 31st October 2024 – just one day after the Budget!
The bands thresholds for Stamp Duty on second homes are now:
- 5% tax for up to £250,000 spent on a property,
- 8% for the next £250,001 to £925,000 spent
- 13 % for £925,001 to £1,500,00, and
- 15 % above £1.5m
Since 2022, first-time buyers have not been required to pay Stamp Duty on the first £425,000 spent on a property. This was designed as a temporary measure until 2025. The Chancellor did not mention an extension to this, therefore it’s expected this threshold will fall to £300,000 next year.
Despite campaigning for the new government and their predecessors to future-proof the Lifetime ISA, the Chancellor failed to include these vital changes in the Autumn Budget. The decision not to future-proof the Lifetime ISA or extend the current Stamp Duty relief beyond next March is a blow for first-time buyers at a time when affordability is already a key obstacle.
A considered strategy to support first-time buyers now and into the future is needed and this must include near-term pragmatic measures that are proven to provide tangible financial support to first-time buyers who need it most.
At Moneybox, we remain committed to working with the government and the industry to ensure the Lifetime ISA continues to support all those who need it most into the future, and in the coming months, we would call on the government to set up a working group to consider its long-term strategy to support the next generation of homeowners in the UK.
Investing
In investing news, the Autumn Budget saw Capital gains tax rise from 30th October 2024, with the lower rate increasing from 10% to 18%, and the higher rate from 20% to 24%.
Capital gains tax is the tax that you might have to pay on the profit you make from selling an investment – such as stocks.
However, most savers and investors can deposit up to £20,000 each tax year into tax-wrapper accounts like Cash ISAs and Stocks & Shares ISAs, and all growth and interest is tax-free. ISA allowances have been confirmed until 2030.
ISA and tax rules apply. All investing should be long term (min. 5 years). The value of your investments can go up and down, and you may get back less than you invest.
Pensions
From April 2025, the full State Pension is set to rise 4.1%, an increase of £460 a year, in line with the triple lock.
Those who reached State Pension age after April 2016 will receive £230.30 per week for the new flat-rate pension. And those who reached State Pension age prior to that, will receive £176.45 a week for the old basic pension.
Reeves also laid out plans to include unspent pension funds and death benefits within the value of a person’s estate for Inheritance Tax purposes, from 6th April 2027. From this point, pension scheme administrators will be liable for reporting and paying any Inheritance Tax on pensions to HMRC.
Stay tuned for updates on the new policies as they come into effect.