It feels like only yesterday that we had our last Spring Budget, and here we go with another one. Likely the last Budget before the general election, so this is the one with the highest chance of seeing gifts to certain demographics in the hope of generating support at the ballot box.
So what was announced, and how does it affect you?
National Insurance Cut
Probably the worst-kept secret in politics was the idea that National Insurance would be cut again this year. Last year there was a cut in the main rate from 12% to 10%, this year the cut continued to 8%. This means that someone on a salary of £35,000 would save around £450 a year, or less than £10 a week. Looking at the projections, this is expected to cost around £10 billion a year, therefore it is likely to be a fairly soft target for a new government after the election, as the net benefit per person is minimal but the potential saving to the Exchequer is significant.
Capital Gains Tax Cut
Sorry if the title got your hopes up, but this tax cut is for landlords only. The higher rate of capital gains tax for people selling a property other than their main residence is set to fall from 28% to 24%, which may be good news if you were planning to sell one or more additional properties soon, but it will not affect non-property investments, your main residence, gains below the higher-rate threshold or any property still held on death.
One might be tempted to question why a chancellor with a seven property portfolio is cutting high rate capital gains tax on property disposals in an election year where he is likely to lose his seat, but I think I will save that for my political blog!
Abolishing Non-Domicile Status
This was something of a surprise, as the Tories have been very reluctant to do anything about the non-domicile tax regime for years, but even assuming they would do something, I suspect this goes a lot further. In essence, the entire non-domicile tax regime has been scrapped, meaning an end to the remittance basis of tax, which allowed non-domiciled individuals to only pay UK tax on assets remitted to the UK, leaving their offshore holdings untouched.
A grace period has been given with a grandfathering clause for offshore trusts established before the non-domicile status is no longer available, so expect to see a lot of offshore trusts established in the next year.
No Change for Fuel and Alcohol
As expected, there were no changes made to the duties that apply to either fuel or alcohol. This includes an extension of an additional 5p per litre reduction on the existing fuel duty rate, but it is important to remember that the existing prices already factor this in, therefore this will not actually result in a saving.
Child Benefit
This might be good if you have children and earn between £50,000 and £80,000, as the new withdrawal threshold is going up £10,000 to £60,000 a year. In addition, the old system was for the entire child benefit amount to be withdrawn over the course of £10,000 of earnings – this has now increased to £20,000. This means that earnings of £70,000 will result in 50% of child benefit being withdrawn, while under the old system £70,000 would have resulted in 100% of the benefit being reclaimed in tax. To summarise, the benefit withdrawal rate will be affected as follows:
This still leaves a potentially very high marginal rate of income tax for those with multiple children, therefore it may be worth looking at whether you can make pension contributions or adjust your income in some way so that you do not fall into this trap.
ISA Allowances
ISA allowances have been frozen for several years now, and this was not expected to change. However, the allowance has been increased, with a caveat. The increase is £5,000 a year, but the restriction is that it must be into British investments. Quite how this will ultimately pan out remains to be seen, but it is likely to be based on the old Perpetual Equity Plan (PEP) which was a precursor to ISAs and allowed people to invest tax-free into certain businesses.
VAT Registration
Some good news for clients of Aegis Financial Consulting – we don’t have to register for VAT until we hit annual turnover of £90,000 instead of £85,000. That means we can continue to charge fees without VAT for a bit longer.
Green Initiatives
There was an announcement of more money being made available for offshore wind investments, but I would not expect to see a return of renewable-focused venture capital funds complete with generous tax relief. I may be surprised, but I strongly suspect those days are behind us.
Inflation
The prediction made is that inflation will fall back to below 2% within a year. I am not certain I believe this, but it is comforting to know that inflation is heading in the right direction. For our cash forecasting purposes, we generally assume a long-term inflation rate of 2.5% rather than the government target of 2%, as we assume that prices are likely to rise faster than the government hopes.
Verdict
Most Budgets in recent years have left me scratching my head to identify what has changed. this isn’t one of those Budgets, as there are quite a few meaningful changes, but I suspect that most of them are fairly inconsequential. If any of these points raise questions about your own finances and you would like to know how to respond, feel free to get in touch.
