With the Spring Budget just around the corner on Wednesday 6th March, all eyes are on Chancellor Jeremy Hunt and his red briefcase. There’s been lots of media speculation about the changes he’ll announce, as it may be the last big fiscal event before the next general election. The measures could include potential tax cuts and changes to ISAs, including the Lifetime ISA for first-time buyers. Here are 5 personal finance changes rumoured to be announced, and what they could mean for you.

 

Lifetime ISA penalty and house price cap

Politico reported that Hunt is planning to reduce the government’s Lifetime ISA (LISA) withdrawal penalty from 25% to 20% and increase the house price cap from £450,000 to £500,000 – two changes which would be great news for first-time buyers. The Lifetime ISA gives savers a 25% bonus on all contributions up to £4,000 each tax year, to save towards their first home or retirement. With up to £1,000 of free money available each year, it’s one of the best accounts for first-time buyers, or a great alternative for your personal pension savings.

Under the current rules, the 25% withdrawal penalty means that if you need to withdraw your money for any reason other than buying your first home (up to £450,000) or retirement, you’ll get back less than you put in. For example, if you deposit £1,000, the govt. bonus boosts your balance to £1,250. But, after the 25% withdrawal penalty, you’d get back £937.50 – a 6.25% loss. Reducing the penalty to 20% would mean that you wouldn’t lose any of your own savings if you needed to access them – just the government bonus.

Currently, first-time buyers can use a Lifetime ISA to buy a property worth up to £450,000, anywhere in the UK. This price cap has stayed the same since the product launched in 2017, but in that time, a global pandemic, soaring inflation, interest rate rises and a cost-of-living crisis have seen average house prices rise significantly. Increasing the house price cap to £500,000 would enable more first-time buyers to get a foot on the property ladder, especially anyone buying in London and the South East or looking for a family home. We hope to see the house price cap become index-linked in future, so it’s truly future-proof.

As the UK’s leading Lifetime ISA provider, we’d love to see these potential changes become reality, to ensure the LISA continues to remain fit for purpose and helps as many first-time buyers as possible. We’ve been campaigning to future-proof the Lifetime ISA for several years, as has consumer champion Martin Lewis. Read more about our LISA campaign efforts.

 

Income Tax and national insurance

Tax changes are always the main focus of any Budget speculation, but the Chancellor is faced with a dilemma this spring. As the UK falls into a technical recession, Hunt has been warned against introducing big tax cuts by the Office of Budget Responsibility. It’s unclear whether big tax cuts will be his ‘rabbit in a hat’ this Spring Budget, or whether he’ll keep them up his sleeve for a future Conservative election manifesto.

Cutting personal taxes is expensive for the Treasury, so there’s a question over how much headroom the Chancellor has for this in the Spring Budget. Deciding to cut the basic rate of Income Tax by 1p would cost the Treasury £7bn in tax revenue, according to the Resolution Foundation, an independent think-tank. He’d previously been weighing up a bigger 2p cut, which would cost over £13bn and now looks unlikely given the outlook for interest rates.

The Times have reported that Hunt might choose to spend some of that money cutting National Insurance a further 1% instead. Another National Insurance cut would mean UK workers take home more of their pay. National Insurance was cut from 12% to 10% in January, saving the average worker £450 per year. 

Another option for the Chancellor would be to unfreeze the thresholds for personal income tax, or the threshold for the higher-rate band, in line with inflation. This would also mean that workers get to keep more of their pay before tax.

 

Creation of a new British ISA

As rumours of the ‘British ISA’ to encourage investment into UK companies didn’t come to fruition in the Autumn Budget, it might be on the cards this time around. A new British ISA could give investors an extra £5,000 allowance every tax year, allowing them to invest in UK-listed companies, tax-free. 

Rishi Sunak and Jeremy Hunt are reported to be split on the idea, which has been criticised by some in the industry as adding an unnecessary layer of complexity to ISAs. Many have argued that increasing the overall £20,000 ISA allowance would be a simpler move, enabling people to invest more in the UK market but in a more diversified way. 

 

Inheritance Tax 

Another potential change we might see is that the Chancellor will cut Inheritance Tax, or remove it altogether. Inheritance Tax is always a politically charged topic, with many viewing it as a tax break for the wealthy as it only affects 4% of estates in the UK. So, it’s possible this is another change that Hunt will save for the Conservatives election manifesto.

Everyone in the UK has an allowance of £325,000 (their ‘nil-rate band’), meaning they can leave an estate up to that amount without Inheritance Tax being payable. Couples can add their allowances together and leave £650,000 tax-free. There’s also a ‘residence nil-rate band’, which boosts this allowance to £1 million if you’re a couple leaving the family home to a ‘direct descendant’, like your children, grandchildren, stepchildren or adopted children. 

Above the nil-rate band, inheritance tax is charged at 40%. It’s possible that Hunt will cut this headline rate, increase the threshold at which Inheritance Tax becomes payable, or relax the rules on gifting money to family members. 

 

Child benefit 

The Chancellor is reported to be considering increasing the threshold at which the High Income Child Benefit Charge kicks in. Under the current rules, a parent or guardian claiming child benefit starts to lose it once they earn more than £50,000. For every £100 they earn over this threshold, they have to pay back 1% of the child benefit they receive. 

The current system has been criticised as unfair – as a single parent earning £60,000 won’t get any child benefit, but a dual-income family where both parents earn £50,000 will receive the full amount. The threshold has been in place since 2013, but inflation and average incomes have increased since, so many feel that a reset is long overdue. 

 

Tune into the Spring Budget on 6th March at 12.30pm on BBC One. Once the Budget is announced, we’ll review the changes and what these could mean for Moneybox customers. We’ll be in touch shortly after with our Spring Budget breakdown email.

 

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.

Lifetime ISA government withdrawal charge may apply. 

If using a Lifetime ISA instead of your workplace pension to save for retirement, note that you may miss out on workplace pension contributions from your employer, and it may affect your current and future entitlement to means tested benefits.